Disappointing 1Q CY08 for AT&T. iPhone helps Revenue, but AT&T continuesto fall far behind Verizon in both total retail customers and in new WirelessCustomers

AT&T disappointed analysts with their 1Q CY08 results in the wireless
division. "Overall, I think it was largely in line, but not a great
quarter. And wireless net adds were less than expected," stated
Christopher King (http://tinyurl.com/3ly6qn)

What's sad for AT&T is that even with the iPhone, they added only about
half as many new retail contract customers in the last quarter as
Verizon, even though according to one report, 40% of iPhone users on
AT&T are new subscribers.

For Q1 CY08:

Verizon added 1.5 million customers, 1.3 million of them postpaid retail
contract customers. ARPU was $51.40.

AT&T added 1.3 million customers, 705000, of the postpaid retail
contract customers. So nearly half of their net additions were
low-profit prepaid and MVNO customers. ARPU was $50.18.

Verizon continues to lead as the largest U.S. carrier for customers
actually signed up with carrier and not just using their network through
an MVNO, as well as continuing to expand their huge lead in retail,
postpaid customers.

Is it any wonder that Apple first approached Verizon with the iPhone?
Why hasn't the iPhone solved AT&T's lagging new retail sign-ups?

OTOH, AT&T beat Verizon in wireless revenue, $11.8 billion to $11.7
billion, and much of that is attributable to the higher ARPU from iPhones.

AT&T is catching up with Verizon on data ARPU, with an increase of 57.3%
in data ARPU versus an increase of only 48.9% for Verizon (though since
AT&T was starting from a lower base number it's easier to get a larger
percentage increase.

Verizon's data ARPU was $10.79 for Q1 CY08, while was AT&T’s around $9.
The 3G iPhone should help AT&T increase data ARPU beginning in the third
quarter.

---

› See More: Disappointing 1Q CY08 for AT&T. iPhone helps Revenue, but AT&T continuesto fall far behind Verizon in both total retail customers and in new WirelessCustomers

SMS <[email protected]> amazed us all with the following in
news:[email protected]:

> AT&T disappointed analysts with their 1Q CY08 results in the wireless
> division. "Overall, I think it was largely in line, but not a great
> quarter. And wireless net adds were less than expected," stated
> Christopher King (http://tinyurl.com/3ly6qn)
>
> What's sad for AT&T is that even with the iPhone, they added only
> about half as many new retail contract customers in the last quarter
> as Verizon, even though according to one report, 40% of iPhone users
> on AT&T are new subscribers.
>
> For Q1 CY08:
>
> Verizon added 1.5 million customers, 1.3 million of them postpaid
> retail contract customers. ARPU was $51.40.
>
> AT&T added 1.3 million customers, 705000, of the postpaid retail
> contract customers. So nearly half of their net additions were
> low-profit prepaid and MVNO customers. ARPU was $50.18.
>
How do you figure them to be low-profit? MVNO customers come with no
acquisition or retention costs, far lower billing costs and no credit or
collections costs associated with them. In many cases, even the cost of
customer care is carried by the MVNO..This results in an almost pure profit
stream for this revenue..

Of course, your opinion is probably a little warped because your beloved
Verizon hasn't picked up on that yet. Better to misrepresent the truth
than admit they are missing a cash cow.

Scott wrote:

> How do you figure them to be low-profit? MVNO customers come with no
> acquisition or retention costs,

How do you figure that? Of course there are acquisition costs. The
prepaid phones are sold at below cost, and there are still marketing and
advertising expenses.

I probably should have said "lower profit" not "low profit." Sure you
might have a few prepaid customers using massive amounts of air time,
and ending up providing more revenue than a post paid customer, but it's
not common.

> far lower billing costs and no credit or collections costs associated with them.

But the carriers have been driving down these costs with eBills and
electronic payments, either debit or credit. It also costs money to
market the airtime cards.

> Of course, your opinion is probably a little warped because your beloved
> Verizon hasn't picked up on that yet. Better to misrepresent the truth
> than admit they are missing a cash cow.

I don't love any company. I have no idea why Verizon has eschewed making
a serious effort in prepaid. Well actually I do have an idea. I'd say
that they're worried that a decent prepaid offering would cannibalize
into the more profitable postpaid sales, given that many customers
consider only Verizon when looking for wireless service (due to the much
higher ratings that Verizon receives for coverage and quality). In my
area (Northern California) it's often a choice between Verizon or "no
coverage." The cheapest carrier-prepaid is from T-Mobile, which has
terrible coverage in this area.

SMS <[email protected]> amazed us all with the following in
news:[email protected]:

> Scott wrote:
>
>> How do you figure them to be low-profit? MVNO customers come with
>> no
>> acquisition or retention costs,
>
> How do you figure that? Of course there are acquisition costs.

Not for MVNO customers- that cost is the burden of the reseller alone.

>The
> prepaid phones are sold at below cost,

Which provides a nice write-off to offset the income.

> and there are still marketing
> and advertising expenses.

Not with an MVNO. You do know how this works, don't you?

>
> I probably should have said "lower profit" not "low profit." Sure you
> might have a few prepaid customers using massive amounts of air time,
> and ending up providing more revenue than a post paid customer, but
> it's not common.
>
>> far lower billing costs and no credit or collections costs associated
>> with them.
>
> But the carriers have been driving down these costs with eBills and
> electronic payments, either debit or credit. It also costs money to
> market the airtime cards.

I see a pattern. You lumped MVNO and prepaid into the same class of
customers. I pointed out your very flawed opinion about MVNO, so now
you are talking about prepaid exclusively. How interesting.

Now, as to your claims abourt ebills and electronic payments. The
carrier has no billing cost associated with an MVNO customer, except to
bill the the reseller for the total minutes used by their customers.
And the cost of payment is much different than the cost of collecting
that payment. Again, there is no additional cost associated to either
prepaid or MVNO to collect payments.

Of course, someone of your self-professed expertise would already know
that, wouldn't they?

>
>> Of course, your opinion is probably a little warped because your
>> beloved Verizon hasn't picked up on that yet. Better to misrepresent
>> the truth than admit they are missing a cash cow.
>
> I don't love any company. I have no idea why Verizon has eschewed
> making a serious effort in prepaid. Well actually I do have an idea.
> I'd say that they're worried that a decent prepaid offering would
> cannibalize into the more profitable postpaid sales, given that many
> customers consider only Verizon when looking for wireless service

Cite? And I am looking for an independent study proving your specific
claim that "many customers consider ONLY Verizon."



>

Sorry, but after the dismal support of Verizon with their crippled phone
software/hardware (e.g. Bluetooth to car audio system) why would I want to
go to them? Now that CA law requires hands-free in July, some of their damn
phones still do not work although they are supposedly "Bluetooth capable,"
just not unlocked by Verizon.

Verizon is in the stone age.

B~

At 29 Apr 2008 18:30:53 -0700 SMS wrote:

> How do you figure that? Of course there are acquisition costs. The
> prepaid phones are sold at below cost, and there are still marketing
> and advertising expenses.


All of which are bourne by the MVNO- not the underlying carrier. The MVNO
buys airtime "in bulk" at wholesale cost. Given that the airtime itself
has essentially no cost (since the infrastructure is already in place and
does no one any good when idle) it's essentially pure profit.

Arguably, the only way MVNOs "hurt" the carrier, is if the MVNO offers a
good enough deal to cannibalize a monthly/contract customer, which for
AT&T's MVNOs is unlikely- any cannibalization that exists is probably
spread equally among carriers.

> I probably should have said "lower profit" not "low profit." Sure you
> might have a few prepaid customers using massive amounts of air time,
> and ending up providing more revenue than a post paid customer, but
> it's not common.


True, but the alternative is no revenue at all from that customer (again,
assuming the MVNO customer is not choosing that particular MVNO over an
AT&T contract plan.) The fact that a large percentage of AT&T's customers
are wholesale yet AT&T's ARPU is only a buck less than Verizon's either
means AT&T's wholesale customers are relatively high profit, or AT&T's
retail customer ARPU is MUCH higher than Verizon's.

> > far lower billing costs and no credit or collections costs associated
with them.
>
> But the carriers have been driving down these costs with eBills and
> electronic payments, either debit or credit. It also costs money to
> market the airtime cards.


Again, that's the MVNO's problem, and even with AT&T's own GoPhone system,
the bulk of replenishment card sales and marketing (outside of it's
corporate stores and online system) is handled by 3rd parties (e.g. Fastcard,
etc.)


> I don't love any company. I have no idea why Verizon has eschewed
> making a serious effort in prepaid.

Because the ONLY marketing advantage Verizon has is "The Network." It
sells their overpriced crippled handsets on their overpriced service for
them. The minute another company can claim to have the same network,
Verizon's marketing advantage disappears. (You'll notice even their MVNO,
Page Plus, doesn't get to brag about what network they use.)

> Well actually I do have an idea. I'd say that they're worried that a
> decent prepaid offering would cannibalize into the more profitable
> postpaid sales,

Which is only a danger if your postpaid service is overpriced. If you're
offering a competitive value, prepaid doesn't cannibalize postpaid, as T-
Mobile shows us- they offer the best carrier-prepaid (non-MVNO) value, yet
they still have healthy postpaid net adds, because they also offer a good
value in retail wireless. Alternatively, if you make your own prepaid
rates unattractive (e.g. Verizon's InPulse, AT&T GoPhone) you can also
avoid cannibalization that way.

> given that many customers consider only Verizon when
> looking for wireless service

AT&T and Verizon have been around for two decades now- if "many customers"
only considered Verizon, they'd have a clear dominance in wireless. Sure
they have slightly better ARPU and churn than AT&T, but it's very much a
two-horse race, which would NOT be the case if either service were clearly
superior.

> (due to the much higher ratings that Verizon
> receives for coverage and quality).

Or due to Verizon's relentless marketing of the notion that their network
is somehow vastly superior. AT&T controls roughly the same amount of
spectrum, is established as a legacy 800MHz carrier in roughly the same
number of markets, and covers roughly the same percentage of the
population. Sprint's coverage is essentially a superset of Verizon's,
given the amount of Verizon roaming Sprint allows, yet Verizon is still
synonymous with "coverage" in the public's mind.
> In my area (Northern California) it's often a choice between Verizon or
> "no coverage." The cheapest carrier-prepaid is from T-Mobile, which
> has terrible coverage in this area.

And yet my T-Mobile service performed perfectly adequately on my last trip
there, but admittedly I mostly stuck to cities and highways (like many
cellular customers do!) And T-Mobile clearly hasn't been driven out of
business in your neck of the woods, either, demonstrating that at least a
significant segment of the market finds them, the carrier with the weakest
coverage,an adequate value.

Interestingly, although I bought a Page Plus (Verizon) phone as a backup
for my T-Mobile service last fall (previously I used the now-defunct Beyond
Wireless TDMA service as a backup) I haven't needed to make a single voice
call on Page Plus yet. The only time I've actually used it (other than
playing around) was for e-mail. One of T-Mo's two-bit roaming partners
here in Colorado (Union Telephone) doesn't support GPRS/EDGE data (and why
should they? It's only the 21st Century, after all!), so I opted for Page
Plus' free QNC data loophole for e-mail rather than waste my T-Mo airtime
minutes using CSD.

So, although Verizon's network is superior to T-Mo's, the extra few
percentage points of geographical coverage Verizon gets to brag about is
used by such a small percentage of calls it seems to be a negligable
advantage for a number of people (just as, for example, AT&T's/T-Mo's GSM
"world compatibility" is no advantage for those who do not travel overseas.)

You tread dangerously close to being the "Bizzaro Navas" with some of these
Fanboy-esque Verizon diatribes, sir...

B. Peg wrote:
> Sorry, but after the dismal support of Verizon with their crippled phone
> software/hardware (e.g. Bluetooth to car audio system) why would I want to
> go to them? Now that CA law requires hands-free in July, some of their damn
> phones still do not work although they are supposedly "Bluetooth capable,"
> just not unlocked by Verizon.

There is only one reason to go to Verizon, and that's coverage. Well
maybe the fact that they have a larger and faster 3G network is a factor
to some people as well.

But no argument over their crippled handsets. Amusingly, while Motorola
continues to lose market share, one advantage they have, but can't
advertise, is that it's easy to uncripple the handsets they cripple for
Verizon.

Todd Allcock wrote:
> At 29 Apr 2008 18:30:53 -0700 SMS wrote:
>
>> How do you figure that? Of course there are acquisition costs. The
>> prepaid phones are sold at below cost, and there are still marketing
>> and advertising expenses.
>
>
> All of which are bourne by the MVNO- not the underlying carrier. The MVNO
> buys airtime "in bulk" at wholesale cost. Given that the airtime itself
> has essentially no cost (since the infrastructure is already in place and
> does no one any good when idle) it's essentially pure profit.

Right, but a lot of the AT&T prepaid users are actually on AT&T's own
prepaid service, which is widely sold at big box retailers.

SMS wrote:
> B. Peg wrote:
>> Sorry, but after the dismal support of Verizon with their crippled
>> phone software/hardware (e.g. Bluetooth to car audio system) why would
>> I want to go to them? Now that CA law requires hands-free in July,
>> some of their damn phones still do not work although they are
>> supposedly "Bluetooth capable," just not unlocked by Verizon.
>
> There is only one reason to go to Verizon, and that's coverage. Well
> maybe the fact that they have a larger and faster 3G network is a factor
> to some people as well.
>
> But no argument over their crippled handsets. Amusingly, while Motorola
> continues to lose market share, one advantage they have, but can't
> advertise, is that it's easy to uncripple the handsets they cripple for
> Verizon.
Verizon is still #2 carrier.
Can you hear me now?
My Verizon friends usually get my call/voicemails hours later.
Hmmm.

At 29 Apr 2008 22:42:02 -0700 SMS wrote:

> > All of which are bourne by the MVNO- not the underlying carrier. The
MVNO
> > buys airtime "in bulk" at wholesale cost. Given that the airtime itself
> > has essentially no cost (since the infrastructure is already in place
and
> > does no one any good when idle) it's essentially pure profit.
>
> Right, but a lot of the AT&T prepaid users are actually on AT&T's own
> prepaid service, which is widely sold at big box retailers.

Last figures I saw (early 2007) said there were roughly 3 million GoPhone
customers, and 2.4 million Verizon InPulse customers, numbers close enough
to make bottom-line advantages/disadvantages immaterial. (Just for
completeness, there were also 3 million T-Mo prepaid, and 21 million MVNO
customers across all carriers.)

You were primarily talking about the wholesale (MVNO) customers dragging
down AT&T's numbers...

SMS <[email protected]> amazed us all with the following in
news:[email protected]:

> B. Peg wrote:
>> Sorry, but after the dismal support of Verizon with their crippled
>> phone software/hardware (e.g. Bluetooth to car audio system) why
>> would I want to go to them? Now that CA law requires hands-free in
>> July, some of their damn phones still do not work although they are
>> supposedly "Bluetooth capable," just not unlocked by Verizon.
>
> There is only one reason to go to Verizon, and that's coverage. Well
> maybe the fact that they have a larger and faster 3G network is a
> factor to some people as well.
>
> But no argument over their crippled handsets. Amusingly, while
> Motorola continues to lose market share, one advantage they have, but
> can't advertise, is that it's easy to uncripple the handsets they
> cripple for Verizon.
>

Gee, Steve- did you miss my requesat for data to support your specific
claim that Verizon is the only carrier looked at by a large group of
people?

On Tue, 29 Apr 2008, B. Peg posted:
> Sorry, but after the dismal support of Verizon with their crippled phone
> software/hardware (e.g. Bluetooth to car audio system) why would I want to
> go to them?

My Verizon Moto z6c has a full Bluetooth profile. No more having to fart
around in bitpim or sending an MMS to get ringtones loaded.

You're welcome to keep on beating a dead horse if you wish, but anyone
with a halfway modern phone won't know what you are talking about.

-- Mark --

http://staff.washington.edu/mrc
Science does not emerge from voting, party politics, or public debate.
Si vis pacem, para bellum.

Scott wrote:

> Gee, Steve- did you miss my requesat for data to support your specific
> claim that Verizon is the only carrier looked at by a large group of
> people?

Gee, I didn't realize that I was obligated to respond to every request
of your's!

A lot of consumers depend on Consumer Reports, and since Verizon is
ranked so much higher than all the other carriers, these consumers will
only go with Verizon. Just look at how Verizon extends it's lead every
quarter in the postpaid market.

SMS <[email protected]> amazed us all with the following in
news:[email protected]:

> Scott wrote:
>
>> Gee, Steve- did you miss my requesat for data to support your specific
>> claim that Verizon is the only carrier looked at by a large group of
>> people?
>
> Gee, I didn't realize that I was obligated to respond to every request
> of your's!

You're not, but you certainly seem to conveniently ignore those posts that
show the big holes in your knowledge base.

>
> A lot of consumers depend on Consumer Reports, and since Verizon is
> ranked so much higher than all the other carriers, these consumers will
> only go with Verizon. Just look at how Verizon extends it's lead every
> quarter in the postpaid market.
>

And nowhere in CR does it mention that Verizon is the only carrier that
some people consider, as you claimed. So, we are back to square one- you
made a big claim that you can't back up. Again.

Wanna try to provide a source to back up your claim?

At 30 Apr 2008 22:53:32 -0500 Scott wrote:

> > A lot of consumers depend on Consumer Reports, and since Verizon is
> > ranked so much higher than all the other carriers, these consumers will
> > only go with Verizon. Just look at how Verizon extends it's lead every
> > quarter in the postpaid market.
>
>
> And nowhere in CR does it mention that Verizon is the only carrier that
> some people consider, as you claimed. So, we are back to square one- you
> made a big claim that you can't back up. Again.
>
> Wanna try to provide a source to back up your claim?


I'll point to one that, if it doesn't necessarily refute his claim, at
least deflates it a bit...

http://www.rcrnews.com/apps/pbcs.dll...E/182393100/10
51/newsletter16 (Sorry about the word wrap...)

It's an RCR Wireless News article that covered a study about why people
choose/switch carriers. Of particular note:

"The market research firm found that 22% of consumers cited better coverage
as the primary reason for switching carriers -- down substantially from 27%
in a November 2006 survey -- while price was the deciding factor for 19% of
users, an increase over the 14% in the prior poll..."

So, essentially fewer people are looking for better coverage this year than
last, but more people are shopping on price. I'd say that looks (to me)
like coverage is becoming less of an issue each year. So, does that
suggest that the carriers' coverage areas are getting less disparate, or is
it that maybe people arejust becoming more tolerant of dropped calls and
weak signal? I'd gamble it's the former...

[While not really directly related to the topic at hand, I'm sorry- I'm
just too weak-willed to pass a up a slight jab at the iPhone: at the very
BOTTOM of the reasons to switch carriers was "the desire for a specific
phone (3%)." It does help explain, however, why carriers don't seem to be
negatively impacted by lousy handset selections.]