AT&T, Verizon Poised to 'Stay Ahead of the Competition'

The analysts predict Sprint and T-Mobile will “remain confined to value players in the phone business" and are likely candidates for consolidation.

February 17, 2016

2 Min Read
AT&T, Verizon Poised to 'Stay Ahead of the Competition'

By Josh Long

AT&T and Verizon will continue to outperform their smaller competitors as the big two mobile operators invest in new technologies such as 5G and expand into growth areas including video and mobile advertising, according to analysts with Technology Business Research (TBR).

“These companies’ ability to fund new businesses as well as propensity and willingness to pursue and fund business and network transformation enables them to stay ahead of the competition,” TBR analysts Chris Antlitz and Michael Soper of TBR concluded in a seven-page report released Tuesday.

Sprint and T-Mobile will “remain confined to value players in the phone business,” the analysts noted.

“T-Mobile and Sprint will focus on siphoning off phone subscribers from premium-priced players such as AT&T and Verizon as well as regional carriers and adding connected devices to their networks by offering the lowest access prices,” Antlitz and Soper said.{ad}

The strategy is paying off for T-Mobile, whose fourth-quarter results released Wednesday beat analysts’ expectations. The Bellevue, Washington-based carrier wooed 2.1 million customers, bringing its total customer additions to 8.3 million for the year. T-Mobile, which ended the quarter with 63.2 million customers, reported a profit of $297 million, nearly tripling its profit from a year earlier ($101 million).

In their report Tuesday, TBR analysts expressed the view that “Sprint and T-Mobile will be pressured into M&A and partnerships to strengthen their financial positions and tap into new growth areas.” But T-Mobile appears to be doing just fine on its own.

“We aren’t just winning customers; we’re keeping them too,” T-Mobile CEO John Legere said during Wednesday’s earnings call, according to an article from Reuters. “Contrary to the belief that most of the donation (of subscribers) in the industry is coming from Sprint, it’s actually coming from AT&T.”

Sprint has been seeking to court subscribers by offering lower monthly service fees without a traditional contract. But the company hasn’t fared as well as T-Mobile. While the carrier added 491,000 customers in the fourth quarter, Sprint reported a net loss of $836 million and has been laying off employees.

TBR analysts pointed out AT&T and Verizon produce mountains of cash, putting them at an advantage over Sprint and T-Mobile. Last year alone, AT&T and Verizon generated free cash flow of $15.9 billion and $21.1 billion, respectively.

“This robust cash generation provides a substantial cushion for AT&T and Verizon to steer dollars into new initiatives,” Antlitz and Soper wrote in the report. “Conversely, T-Mobile and Sprint are focused on balancing the cash they have and allocating as much money as possible into [improving] their network and [meeting] their debt obligations.”

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