This was a big week for American telco giants Verizon and AT&T, as they both reported losses of $2.02 billion and $6.7 billion, respectively. As a result, both companies saw a drop to their share prices. Not exactly what shareholders want to see after already being in the hole to the tune of billions of dollars.
On the flip side, we have Apple, posting its largest revenue generating quarter, $46 billion, in the history of the company. To top it all off, Apple also secured the largest quarterly revenue reported in US corporate history. From a market capitalization perspective, Apple has surpassed even oil and gas tycoon Exxon Mobil, with a $418 billion market cap to Exxon’s $417 billion. I am sure the late Steve Jobs would have been proud.
Apple’s fabulous revenue margins were achieved partly at the expense of the net losses posted by Verizon and AT&T. Both reported FY 2011 as having the highest iPhone sales than any prior year (with AT&T selling 9.4M smartphones in Q4 2011, 80% being iPhone, and Verizon selling 7.7M smartphones, 55% being iPhone). Both telco’s Q4 statements illustrated maxed out COA (Cost of Acquisition) budgets to get their customer base upgraded to integrated smartphone devices (like iPhone 4S).
Even though customer hardware subsidy lines soared out of control, it’s important to recognize that both Verizon and AT&T posted double-digit gains year-over-year on nearly every metric. For both carriers, losing money right now is part of the plan.
It takes money to make money
Proportionally, Verizon I believe is the star this week. Not only because it managed to post less loss than AT&T, but Verizon literally blew AT&T’s net new postpaid wireless additions out of the water. AT&T may have gained 2.5M subscribers in Q4 2011 over Verizon’s 1.2M, but I am more interested in comparing year-over-year growth. AT&T’s FY 2011 gain of 2.5M subscribers was only an 8.1% increase when compared to FY 2010 (that’s a blended prepaid/postpaid figure as well. If we compare apples to apples, AT&T only achieved 1.9% postpaid year-over-year growth). Conversely, Verizon’s gain of 1.2M retail postpaid subscribers resulted in a 68.1% year-over-year growth rate. This is not getting enough attention.
What was AT&T maxing their COA out on if they weren’t posting stellar subscriber growth? They were busy upgrading their customer base, locking in better churn numbers at record highs of 9BPs to 1.18% ,leading on Verizon’s drop in churn of 7BPs to 0.94%.
Data, Data, Data… and more Data!
Both telco’s posted significant increases to data revenue margins. Verizon reported a revenue increase of $6.3B up 19.2% year-over-year. AT&T reported a data revenue increase of $22B up 21% year-over-year. This clearly illustrates a wireless revenue trend, which will likely surpass legacy voice revenue. If you read my last post, you know that premium wireless data revenue is the future telco battleground.
What does all this tell us? Bad news sells for the wrong reasons. Both posted losses were well worth the cost for Verizon and AT&T! All those smartphone sales will enable them to continue cashing in on more data revenue while gaining net new subscribers in 2012.