Aug 27, 2010 10:04 AM PDT
In the Domestic Telecomm Industry today, Verizon stole the media cycle from AT&T (T) with its 10Q numbers and a possible deal in the works with Apple (AAPL) for a Verizon version of the iPhone.
With AT&T's exclusivity on the iPhone nearing an end next year, Apple is looking for suitors and increased market share. Apple is reportedly considering making an iPhone that would be ready for Verizon's network as early as next year.
But not to downplay AT&T, just last week, Apple's COO Tim Cook, who is standing in for Stephen Jobs, confirmed it was happy with AT&T and talked down the possibility that Apple would be interested in developing a phone to be used on Verizon's CDMA network. Cook: "We view AT&T as a very good partner. We believe that they're the best wireless provider in the US and we are very happy to be doing business with them.
Still, they're talking with Verizon.
And to win the day, Verizon released its Q1 2009 numbers this morning and they were none to shabby. During the quarter, Verizon Wireless added 1.3 million net customers. Verizon also brought in 13.2 million customers from the acquisition of Alltel, which closed in January. Verizon Wireless ended the period with 86.6 million wireless customers.
Verizon reported 58 cents in EPS and 63 cents in adjusted EPS (non-GAAP), compared with 1Q 2008 EPS of 57 cents and 61 cents, respectively. Cash flows from operations were $6.4 billion, up $1.0 billion, or 19.1 percent, year over year and Capital expenditures totaled $3.7 billion; free cash flow totaled $2.7 billion, up $1.5 billion.
The Verizon wireless division boasted 86.6 million total customers, up 28.8 percent; 84.1 million retail customers, up 29.0 percent; and 1.3 million net customer additions; almost all retail. This resulted in a 29.6 percent increase in total revenues. Verizon's total operating revenues grew 11.6 percent to $26.6 billion.
To give a few comparisons in size and scope on the income statement with rival AT&T, Verizon trades in the $31 range and AT&T in the $25 range. Verizon has 223,900 employees, AT&T has 302,660. The Verizon market cap is approximately $86.64B and AT&T $148.44. Both are trading very close to their 50 day and 200 day moving average and both are trading near equal on an outstanding share float ratio basis. Verizon's gross profit for the trailing twelve months is $58.35B and AT&T's is $74.13B.
I believe the difference here is fixed-line customers and its continuing revenue stream from iPhones. AT&T reported a first-quarter profit drop of 9.7 percent from a year ago, but its net income of $3.1 billion, or 53 cents a share, and that kept the faithful buying shares. AT&T revenues were $30.6B, compared to $30.7B in the quarter a year earlier and those earnings were powered by a 40 percent increase in wireless data sales and the activation of 1.6 million iPhone 3G devices.
Dow Jones Mobile Telecom Index
While it seems that Verizon has the current momentum in the wireless competition, I believe the fixed-line base gives AT&T a certain core competency similar to how many slot machines are in a casino to guarantee the light bills get paid. The AT&T Uverse and the Verizon FIOS visual markets are to me; underdeveloped and undercapitalized by both and a near-equal number of subscribers bares this out at the present time.
Sticking with the idea that a solid fixed-line service could be a current edge in overall profits, I've noticed that Foreign Telecom Services, in this case China, face a similar model with an exception. What I noticed in the China model that could well be a leading indicator for U.S. Telecomm companies is that fixed line subscribers are declining.
Dow Jones Fixed Telecom Index
China's wireless carriers added 10.0 million subscribers in February, up from 8.5 million in January. China Mobile's (CHL) GSM service dominates, but China Telecom's (CHA) CDMA grew the most. And while China Mobile still dominates the industry with 471 million subscribers or 74% of the market (it added 6.8 million subscribers and grew 1.4% sequentially in February), China Telecom's new mobile service rose 5 percent to 32.8 million compared with the previous quarter while its fixed-line accounts dropped to 204 million in the first quarter, compared with 208.4 million in the previous quarter.
While China Telecom earned a respectable $686M for the three months ended March 31, its first quarter profit plunged 27.4 percent as demand for traditional fixed-line telephone services weakened.
As Chinese competition strengthens within its borders and it moves more and more towards wireless, the emerging trend there, along with Verizon perhaps getting its services on an iPhone soon, might soon tip the balance in the U.S.
If you're at all curious about China and its subscriber base; here are some numbers: China Telecom has approximately 208M fixed line subscribers, 44M broadband subscribers, and 28M mobile subscribers. China Mobile has approximately 457.25M subscribers and the third major carrier, China Unicom (CHU) has approximately 133.365M subscribers in 31 provinces, municipalities, and autonomous regions in China.
China Telecom trades in the $47 range, has a market cap of approximately $37.80B and is above its 50 day and 200 day moving average. China Mobile trades in the $45 range, has a market cap of approximately $181.85B and is in line with its 50 day and 200 moving average. Both are approximately mid-point in their 52 week hi-low price range.
Small and micro cap stocks following the trend lines of the major players include: Titan Global (TTGL), Applied Signal Technology (APSG), Central Telecomm (CRMUY) and Franklin Telecomm (FKRT) on the Bulletin Board.
