Verizon (VZ) Industry Analysis

XXXXXXXXXXXXXXXXXXI Industry Analysis The telecom industry comprises companies that provide telephony, cable and satellite television, and internet services. Collectively, the industry maintains and provides customers access to the facilities that transmit data in various formats on multiple mediums. The industry as a whole is moving to deploy 4th Generation Long Term Evolution (4G LTE) networks to provide fast, mobile and on-demand services that are capable of handling large volumes of data in multiple formats and on different mediums. 4G, a successor to 3G networks, is an industry standard for wireless telecommunication that allows for faster communication on multiple mediums such as voice, data and video. Industry Statistics: Wireless Wireline »Industry Revenues - $236 billion Industry Revenues -$265 billion Connections - 326 million Connections-141 million Average Revenue per User (ARPU) - $48.73 High-speed Internet Connections-90.7 million Smartphone Penetration - 61% Basic Cable TV Subscribers - 56 million 'Us data for 2012 Trends: Wireline to Wireless Wireless segment revenues for all major carriers grew in 2012, with Verizon's revenues growing the most at 8. 1% year-over-year (YoY). Similarly, AT&T, Sprint and T-Mobile each grew by 5.6%, 6.7% and 5.3%, respectively. This is at- tributable to increasing growth in the number of subscribers for wireless services. Total Industry Revenues Industry Connections (in 00) - Fixed Access Lines Wireless Subscribers Wireless Revenues -Wireline Revenues 400,000 $240,000 300,000 $220,000 $200,000 200,000 $180,000 100,000 $160,000 $140,000 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 2011 2012 Market Saturation The telecom industry has become saturated, with current market pene- tration in the wireless segment at 102%. There are over 700 million connec- tions in total, including both wireless and wireline subscribers. The wireless is cannibalizing the wireline segment, but certain wireline businesses are continuing to add subscribers, and some wireline services provided by tele- com carriers are faring better than others. Nonetheless, while the number of retail wireless subscribers has jumped from roughly five million in 2000, to roughly 338 million as of now, fixed-line connections have dropped almost 22% from 212 million to 166 million over the same period. Growth in Subscribers Total Wireless Subscribers (000's) Fixed Line Voice Connections (000's) High Speed Internet Subscribers (000's) Video Subscribers (000's) 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 J-00 J-01 J-02 J-03 J-04 J-05 J-06 J-07 J-08 J-09 J-10 J-11 J-12 Verizon's FiOS and AT&T's U-Verse service packages, which provide both broadband internet and TV services through a fixed line, have been growing even though voice revenues have declined for both companies. AT&T's U-Verse subscriber base has grown at an average annual rate of 34%, while Verizon's FIOS has grown at an average annual rate of 19.8% over the five years ending 2012. Video Subscribers (in O00s) AT&T U-Verse Verizon FiOS 5,000 4,000 3,000 2,000 1,000 2008 2009 2010 2011 2012 Voice to Data The demand for data services, which include messaging and video streaming, content uploading and downloading services, is on the rise. While voice services still generate more revenues compared to data, industry surveys conducted by Ericsson suggest that a rise in smartphone usage, tablets and other interconnected devices will eventually result in data services overtaking voice in terms of revenue generation by 2016. The Average Revenue per User (ARPU) from wireless data services has grown at an average annual rate of 16% over five years ending 2012; in comparison, voice ARPUS have fallen at a compound annual rate of 7.79% over the same period. Industry ARPU (Voice vs. Data) Wireless Data ARPU Voice vs. Data Wireless Voice ARPU $45 $42 Voice Data $37 $34 $40 $30 $160,000 $28 $35 $140,000 $30 $21 $120,000 $25 $100,000 $20 $18 $16 280,000 $15 $14 $60,000 $10 $10 $40,000 $5 2012 2011 $0 2010 $20,000 2009 2008 $0 2011 2012 2009 2010 2008 Increasing usage of smartphones, tablets and interconnected devices is driving the growth in data consumption. 61% of all US postpaid subscribers now own a smartphone, and telecom companies expect this number to grow in the future: smartphone shipments have grown 42.4% every year over last five years. Smartphone and Tablet Shipments - Large Screen Device Shipments (000's) Smartphone Users (as a % of wireless subscribers) •Smartphone Shipments (000's) 70% 130,000 60% 105,000 50% 80,000 40% 30% 55,000 20% 30,000 10% 5,000 2012 2011 2009 2010 0% 2008 2012 2011 2010 2008 2009 Competitor Analysis As measured by market capitalization': AT&T - $184.5 billion Verizon Communications - $142.97 billion Sprint Communications? - $27.4 billion T-Mobile US- $19.6 billion 1As of November 12, 2013 2Sprint Nextel sold of 72% if its stake to SoftBank in July 2013. Parts of this analysis exclude Sprint's data due to material changes in the company's operations and unavailability of new data. US Wireless Market Share (in million.) Total Wireless Subscribers Postpaid Wireless Subscribers 107 li 98 93 70 56 32 AT&T INC SPRINT T-MOBILE COMMUNICATIONS US INC VERIZON COMMUNICATIONS Net Additions - The number of subscribers added by a carrier during a given period. Net additions to wireless subscribers in the third quarter of 2013 (3Q13): AT&T: 0.989 million Verizon Wireless: 1.06 million Sprint: -0.36 million T-Mobile: 1.02 million US Wireless Subcribers (in million.] TAT&T Inc IT-Mobile US Inc (prev MetroPCS) I Verizon Communications Inc 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 -500.00 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 1QFY13 2QFY13 3QFY13 Churn Rate - The churn rate is a measure of the number of customers who either discontinue their subscriptions with a carrier and/or switch to a competitor. Among the largest competitors, T-Mobile has the highest churn rate since the company has no lock-in clause on its services contracts. Verizon on the other hand, has the lowest churn rate. Churn Rates in 3Q13: AT&T: 1.31% Verizon Wireless: 1.28% Sprint: 2.09 % T-Mobile: 3.2% Blended Churn Rate Comparison I At&T T-Mobile Verizon 5 4 3 2 udbubuhu 4QFY10 1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12 4QFY12 3QFY13 2QFY13 3QFY13 Average Revenue per User (ARPU) - The ARPU is a measure of the price an average user pays for the services he/she receives from a telecom company. Among the market leaders, Sprint has the highest ARPU at $49.96 because the company offers unlimited data and voice bundles, while its competitors charge based on usage limits. Wireless Postpaid Monthly ARPU (2012) $60.00 $50.00 $46.96 $47.51 $49.92 $40.00 $40.63 $30.00 $20.00 $10.00 $- AT&T INC VERIZON SPRINT T-MOBILE Mergers & Acquisitions There has been a wave of acquisitions and attempted takeovers in the industry in recent years. These are likely to continue in the future as companies try to gain control over more radio spec- trums, expand their customer bases and try to squeeze growth in a saturated market. On October 20, 2013, Crown Castle International Corp. and AT&T Inc. decided to enter into an agreement pursuant to which Crown Castle would acquire exclusive rights to approximately 9,700 AT&T towers for $4.85 billion in cash. AT&T is also rumored to be contemplating a takeover of Vodafone, which will result in a new company with a market cap of over $250 billion, and over 500 million subscribers worldwide. Verizon Communications successfully raised capital of around $49 billion, the largest issuance of debt by a private corporation in history, to buy Vodafone's 45% stake in Verizon Wireless. Sprint's acquisition of the remaining 50% of Clearwire Corporation for $14 billion was followed by its merger with SoftBank Corp. T-Mobile acquired MetroPCS in 2013. Subsidies With the introduction of AT&T Next, Verizon Edge and T-Mobile JUMP!, these telecom companies are attempting to reduce the number of devices they sell at subsidized costs. These packages allow subscribers to update devices at least once, but as much as twice a year; however, cus- tomers have to pay for the device they use as part of a service and device cost until they become eligible for an upgrade. In Verizon's case, the cost of the device also has to be paid off for a min- imum of 50% of its original value before an update is allowed. SOURCES: Company Data, SEC filings, Bloomberg Professional Services BIDNESS DISCLAIMER: Etc. Bidness Etc(TM) and related marks are owned by Bidness Etc. Any other trademarks appearing on this website are the property of their respective owners, and are not used to indicate the origin of goods or services offered or provided by Bidness Etc herein or to suggest approval for or affiliation with Bidness Etc.