AT&T, Verizon Seen Creating Bigger Wireless-Market Gap vs Rivals
Published on: 10th Sep 2008
Note -- this news article is more than a year old.
Are the "rich" in the wireless phone business AT&T and Verizon Wireless getting richer One of Wall Street's top wireless analysts says they are.
Craig Moffett of Bernstein Research said the wireless market is rapidly evolving into a "zero-sum" game in which the most successful companies grow at the expense of their rivals. And lately, AT&T and Verizon Wireless have easily been the most successful, even when discounting their large size.
The trend has become particularly pronounced, Moffett said, by a slowdown in the U.S. economy.
"There simply isn't enough growth left in the market to support all players," he wrote in a lengthy research report Thursday.
In the second quarter, for example, Moffett points out that AT&T and Verizon Wireless accounted for 84% of net market growth - a number 24 percentage points higher than in the comparable 2007 period.
"What is surprising is just how little the impact of that (U.S.) slowdown has been felt by the two wireless giants, AT&T and Verizon," Moffett said. "The two have gained enough share to nearly offset the slowdown in market growth."
The recent gains by AT&T and Verizon Wireless - the No. 1 and No. 2 mobile operators - have largely come at the expense of Sprint Nextel and smaller rivals, according to Moffett. Indeed, Sprint has lost millions of customers to AT&T and Verizon Wireless in just the past two years.
The battle for market share might not be so costly to AT&T and Verizon's rivals if they were able to extract more revenue from customers they still serve. That isn't the case, however.
While carriers have enticed customers to spend more money on data and Internet services, the gains have largely been wiped out by declines in wireless-voice revenue. As a result, 99% of AT&T's wireless sales growth in the second quarter stemmed from the addition of new customers, Moffett calculated. The figure was almost as high for Verizon Wireless - 93%.
"That makes subscriber growth - again - virtually the sole growth engine for the U.S. wireless industry," Moffett said.
Among the two wireless leaders, Moffett sees AT&T as better positioned. He cited its exclusive rights to distribute Apple's iPhone as well as improved customer service, the result of which is the company's best subscriber-retention rates ever.
He rates AT&T an outperform with a stock price target of $42. The company's shares edged up 1 cent to close Thursday at $31.56. Verizon rose 1 cent to $34.73. Vodafone gained 3 cents to $23.90.
Moffett has a market perform rating on Verizon. While he lauds the wireless business, he said the company's wireline segment "is weaker than AT&T's."
Not surprisingly, he remains bearish on Sprint despite giving it the same rating as Verizon. Sprint has unveiled a host of initiatives under Chief Executive Dan Hesse, who took over less than a year ago, though visible progress has been slow.
"The challenge of turning around Sprint would be difficult enough in a high-growth environment, but in a slow-growth market, we think the odds are stacked against them," Moffett said.
-By Jeffry Bartash; 415-439-6400; AskNewswires@dowjones.com
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