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Verizon beats AT&T in Q415 results race; mobile video their next battleground

AT&T disappointed Wall Street with its fourth quarter results, while Verizon exceeded expectations, though both carriers’ figures had some causes for concern – in AT&T’s case, a slowing of the postpaid mobile and U-verse TV subscriber bases and wireless revenue; in Verizon’s, falling wireless ARPU and some analysts’ fears that it will run short of capacity before its rivals do.

AT&T reported total revenue of $42.12bn and net income of $4.01bn. For the year, the figures were $146.8bn and $13.35bn. But its wireless revenue for the quarter was down 4.9% year-on-year to $18.9bn. This was mainly because of lower equipment sales, as wireless services revenue fell by just 1.7%.

The Dallas-based carrier picked up a total of 2.2m wireless customers, but only 526,000 of these were in the higher margin postpaid category, and it lost 240,000 U-verse TV subscribers. AT&T says it also led the industry with full-year prepaid net adds of 1.4m, indicating a swing to the pay-as-you-go market (partly thanks to the Leap acquisition) from which AT&T and Verizon have tried to stay aloof.

Churn improvements were impressive at 1.18% in the quarter, down four basis points, suggesting that the company is managing to retain customers but failing to win over new ones.

In comparison, Verizon’s results exceeded expectations, with group operating revenue rising 3.2% year-on-year to $34.25bn, and wireless revenue increasing 1.2% to $23.7bn in Q4. The company now has 112.1m wireless customers, up 3.6% from 2014. It added a net 1.4m wireless retail postpaid subscriptions in the quarter, which is down from last year but still higher than estimates. However, Verizon’s average revenue per account (ARPA) fell 6.6% to $148.30. For the year, Verizon gained 4.5m postpaid customers, bringing its total to 106.5m, up 4.4% from 2014.

Verizon has been investing heavily in its go90 mobile-video service and in the Internet of Things sector to boost revenues, and revenue from IoT-related products increased by 18% to $690m for the year. Sales from its FiOS high speed internet, TV and phone service also increased, rising 6.8% to $3.53bn – the service added 99,000 FiOS internet customers and 20,000 FiOS video customers. Churn declined to 0.96% from 1.14% for the wireless postpaid business.

Overall, Verizon results were solid, but the reduction in ARPA could be cause for concern, particularly as rivals like T-Mobile have been pushing aggressive offers such as TMO’s free video streaming service BingeOn or Sprint’s new 50% discounts, in attempts to steal a slice of Verizon’s customer base. And some analysts, notably New Street Research, point out that Verizon has lower wireless capacity per subscriber than the other members of the big four, which may constrain its ability to add new services and faster speeds unless it invests in more spectrum.

Verizon’s Chief Financial Officer Fran Shammo said in an interview that the company still expected full-year earnings growth, excluding special items, to be on “a flatter plateau” in 2016 than 2015 as a result of those investments and the shift to the installment model.

Both AT&T and Verizon, along with competitors Sprint and T-Mobile, have opted to offer customers monthly installment plans instead of two-year contracts, impacting the balance of results as they have lower service fees. T-Mobile was the pack leader in the US, ending contracts as part of its ‘UnCarrier’ initiative in 2013 and offering a series of new pricing options to encourage uptake and gain market share. Verizon discontinued most contracts in August last year, though it will offer them to existing customers who still want them, AT&T then followed earlier this month.

In the video arena, AT&T has the potential to play a trump card over Verizon if it can harness LTE, WiFi and LTE Broadcast to create a credible video experience around content already contracted to DirecTV, which can be extended to mobile.

We can expect AT&T to be focusing more attention to its video plans as growth in the phone sector has seen minimal growth, this is reinforced by AT&T’s decision to bring back the unlimited data offering to wireless customers who also sign up for to DirecTV – attracting more than half am in the first two weeks. Verizon has its own trick up its sleeve, as last month it announced a plan offering customers who switch from AT&T, T-Mobile and Sprint up to $650 to cover early termination fees.

Rumors have been circulating this week that AT&T is preparing a bid to acquire the Turner Networks piece of Time Warner, according to two of the New York Post’s “well-placed tipsters.” Time Warner Inc. CEO Jeff Bewkes has already said publicly that he’s not open to spinning out such assets. However, making a significant acquisition so soon after the purchase of DirecTV could prove too problematic for AT&T.

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