AT&T Mobility, Verizon Wireless boast about Q3 accomplishments

AT&T Mobility (T) and Verizon Wireless (VZ, the nation’s two largest wireless operators, posted third quarter results late last week that showed some interesting results for both operators.
AT&T Mobility managed to handily win the customer growth adding 2.6 million “connections” to its network during the quarter compared with the 1.25 million added by Verizon Wireless. However, from a financial point of view Verizon Wireless continued to amaze investors with its robust margins that handily topped those posted by AT&T Mobility.
During conference calls with investors following their earnings releases, both operators attempted to put their spin on the results, as well as provided some insights into their plans going forward.
AT&T Mobility’s management was high on the carrier’s continued strong sales of what it terms “integrated devices,” or those handsets that include a real or virtual QWERTY keyboard. This description is broader than just smart phones and includes devices geared toward consumers looking for a messaging device without having to fork over the additional monthly expense related to signing up for service with a smart phone.
According to Ralph de la Vega, CEO of AT&T Mobility and Consumer Markets and president of Mobility and Consumer Markets at the company, 57% of the carrier’s postpaid customer base was using integrated devices at the end of the quarter and that 80% of new sales and activations were devices from that category.
AT&T Mobility also said it was planning to launch three new Motorola Inc. devices powered by Google Inc.’s Android operating system by the end of the year. Motorola showed off those devices – the Bravo, Flipout and Flipside – at the recent CTIA Enterprise & Applications event in San Francisco.
As for its network operations the carrier continues to update its 3G network with HSPA+ technology that it claims will provide a solid user experience for consumers, especially as it begins to rollout LTE-based services next year.
While not naming a carrier, de la Vega noted that AT&T Mobility would not “have the fall back issues that CDMA customers will have as they move from 4G back to CDMA Rev. A speeds.”
Verizon Wireless is currently scheduled to launch LTE services covering more than 100 million potential customers in 38 markets and dozens of airport locations by the end of the year. The carrier has said it expects download speeds for the new network to approach 12 megabits per second, and that customers that are not in coverage areas will fall back to its EV-DO Rev. A network that currently provides download speeds of up to 3 megabits per second.
By comparison, AT&T Mobility completed upgrading its 3G network with HSPA+ 7.2 technology that supports downlink speeds up to 7.2 Mbps and is in the process of further upgrading that network with 14.4 Mbps capabilities. The carrier plans to begin rolling out LTE services next year covering around 75 million pops by the end of 2011.
To support those build out plans, which include substantial upgrades to its backhaul capabilities, AT&T Mobility’s management said the carrier increased capital expenditures 55% year-over-year through the first three quarter and that it expects to spend $2 billion more in 2010 than it did on 2009.
One area that seemed to fall short for the carrier was its operating income before depreciation and amortization margins that dropped from 40.3% during the third quarter of 2009 to 37.6% this year. AT&T Mobility blamed the short fall on its growing integrated device sales that typically require a higher up-front subsidy as well as the integration of Alltel Wireless customers it acquired from Verizon Wireless that needed to have their CDMA handsets swapped out for GSM-based devices.
While AT&T Mobility was under the microscope for its falling margins, Verizon Wireless continued to dazzle investors with its 47.2% EBITDA margin on service revenues for the third quarter. The carrier noted that those results showed its operating efficiencies, though noted that the results could be impacted by a pickup in sales of higher-end devices.
Verizon Wireless noted that 23% of its retail postpaid base were using smart phones at the end of the third quarter with 43% of devices activated on its network during the quarter falling into that device category.
While questions directly relating to the possible addition of Apple Inc.’s iPhone to the carrier’s device line up were refreshingly limited, the carrier brushed aside those attempts to emphasize the success it was seeing with its Android-powered Droid franchise.
Verizon Wireless did give a hint to some new rate plans it expects to rollout this week that will include a $15 data offering for smart phones that provides for 150 megabytes of data throughput to go along with its current $30 plan that includes “unlimited” data transmission. The move to a lower tier has been expected following AT&T Mobility’s data plans adjustments earlier this year that resulted in the carrier offering a $15 plan that includes 200 MB of data transmission and a $25 plan that includes 2 gigabytes.
“But what we believe is that people who are new to this category will probably buy the $15 plan, but over time you will see much more migration to the higher-end because there will be a lot of usage that will drive above the 150 Mb,” explained Verizon Communications Inc.’s EVP and CFO John Killian. “So we think we are in a very good position.”
Killian added that the carrier was not yet ready to comment on plans for LTE data pricing, but that it did like the idea of tiered data pricing and that it was something that could be included in its LTE plans.
The carrier also said that its year-to-date capex was up about 21%, or $1.1 billion, compared to 2009, but that it expects its wireless capex to remain flat for next year as it shifts funds from its legacy CDMA network to expanding its LTE coverage.