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Wireless James G Industry Surveys Telecommunications: Wireless James G. Moorman, CFA, Wireless Telecom Services Equity Analyst JANUARY 2014 Current Environment ............................................................................................ 1 Industry Profile .................................................................................................... 10 Industry Trends ................................................................................................... 13 How the Industry Operates ............................................................................... 21 Key Industry Ratios and Statistics ................................................................... 28 How to Analyze a Wireless Telecom Company ............................................ 30 Glossary ................................................................................................................ 35 Industry References ........................................................................................... 38 CONTACTS: Comparative Company Analysis ...................................................................... 40 INQUIRIES & CLIENT RELATIONS 800.852.1641 clientrelations@ This issue updates the one dated July 2013. standardandpoors.com The next update of this Survey is scheduled for July 2014. SALES 877.219.1247 [email protected] MEDIA Marc Eiger 212.438.1280 [email protected] S&P CAPITAL IQ 55 Water Street New York, NY 10041 Please see General Disclaimers on the last page of this report. Topics Covered by Industry Surveys Aerospace & Defense Financial Services: Diversified Movies & Entertainment Airlines Foods & Nonalcoholic Beverages Natural Gas Distribution Alcoholic Beverages & Tobacco Healthcare: Facilities Oil & Gas: Equipment & Services Apparel & Footwear: Healthcare: Life Sciences Oil & Gas: Production & Marketing Retailers & Brands Tools & Services Paper & Forest Products Autos & Auto Parts Healthcare: Managed Care Publishing & Advertising Banking Healthcare: Pharmaceuticals Real Estate Investment Trusts Biotechnology Healthcare: Products & Supplies Restaurants Broadcasting, Cable & Satellite Heavy Equipment & Trucks Retailing: General Chemicals Homebuilding Retailing: Specialty Communications Equipment Household Durables Semiconductor Equipment Computers: Commercial Services Household Nondurables Semiconductors Computers: Consumer Services & Industrial Machinery Supermarkets & Drugstores the Internet Insurance: Life & Health Telecommunications: Wireless Computers: Hardware Insurance: Property-Casualty Telecommunications: Wireline Computers: Software Investment Services Thrifts & Mortgage Finance Electric Utilities Lodging & Gaming Transportation: Commercial Environmental & Waste Management Metals: Industrial Global Industry Surveys Airlines: Asia Foods & Beverages: Europe Pharmaceuticals: Europe Autos & Auto Parts: Europe Media: Europe Telecommunications: Asia Banking: Europe Oil & Gas: Europe Telecommunications: Europe Food Retail: Europe S&P Capital IQ Industry Surveys 55 Water Street, New York, NY 10041 EXECUTIVE EDITOR: EILEEN M. BOSSONG-MARTINES ASSOCIATE EDITOR: CHARLES MACVEIGH STATISTICIAN: SALLY KATHRYN NUTTALL CLIENT SUPPORT: 1-800-523-4534. ISSN 0196-4666. VISIT THE S&P CAPITAL IQ WEBSITE: www.spcapitaliq.com S&P CAPITAL IQ INDUSTRY SURVEYS (ISSN 0196-4666) is published weekly. Reproduction in whole or in part (including inputting into a computer) prohibited except by permission of S&P Capital IQ. To learn more about Industry Surveys and the S&P Capital IQ product offering, please contact our Product Specialist team at 1-877-219-1247 or visit getmarketscope.com. Executive and Editorial Office: S&P Capital IQ, 55 Water Street, New York, NY 10041. Officers of McGraw Hill Financial: Douglas L. Peterson, President, and CEO; Jack F. Callahan, Jr., Executive Vice President, Chief Financial Officer; John Berisford, Executive Vice President, Human Resources; D. Edward Smyth, Executive Vice President, Corporate Affairs; Charles L. Teschner, Jr., Executive Vice President, Global Strategy; and Kenneth M. Vittor, Executive Vice President and General Counsel. Information has been obtained by S&P Capital IQ INDUSTRY SURVEYS from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, INDUSTRY SURVEYS, or others, INDUSTRY SURVEYS does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Redistribution or reproduction is prohibited without written permission. Copyright © 2014 Standard & Poor’s Financial Services LLC. All rights reserved. STANDARD & POOR’S, S&P, S&P CAPITAL IQ, S&P 500, S&P MIDCAP 400, S&P SMALLCAP 600, and S&P EUROPE 350 are registered trademarks of Standard & Poor’s Financial Services LLC. CURRENT ENVIRONMENT Wireless industry: connected devices driving penetration rate over 100% The wireless penetration rate in the United States has been on a steady uptrend in recent years: from approximately 48.0% at the end of December 2002, it rose to 83.1% at the end of December 2007 and was roughly 104.0% by the end of October 2013, based on subscriber estimates from industry group CTIA-The Wireless Association. (Penetration measures the subscriber base as a percentage of a country’s total population.) While we believe postpaid subscriber growth has slowed as the penetration rate breached 100%, overall growth will continue, in our view, due in part to connected devices such as e-readers and gaming devices, as well as additional data plans for wireless devices such as media tablets. Wireless penetration exceeds 100% in various countries around the world: Argentina, for example, has a wireless penetration rate that we believe exceeds 151% and is still growing. As US service providers continue to tap into new markets, such as providing service to other devices, and as consumers use multiple devices, the US penetration rate may continue to grow well beyond 100%. We note that subscriber growth has become a little more difficult to track, as many carriers now include connected devices and data plans in their subscriber counts. Throughout 2012 and in the third quarter of 2013, while growth in postpaid users (which exhibit higher average revenue per user—ARPU—than other subscriber plans) at most carriers was slowing, growth in prepaid subscribers and connected devices was strong. We believe this trend will continue as the market penetration rate crosses 100% and new, high- speed 4G networks usher in continued innovation in connected devices. We believe that US wireless carriers will continue to look for growth through further consolidation, cost-reduction measures, product innovation, and extensive capital investments to improve infrastructure and service. AT&T, VERIZON WIRELESS SEE GOOD TRACTION WITH SHARED DATA PLANS AT&T Inc. and Verizon Wireless (a joint venture of Verizon Communications Inc. and Vodafone Group PLC) saw positive net additions to their postpaid subscriber base to the tune of 363,000 and 927,000, respectively, in the third quarter of 2013. While both carriers remain focused on adding new postpaid subscribers, they are increasingly focusing on how to keep a handle on surging data usage and the best way to properly monetize it and earn an attractive return on investment (ROI). During an industry conference in May 2012, Verizon Communications CFO Fran Shammo said that the company would require customers to migrate from their unlimited smartphone data plans to shared data plans when they upgrade to 4G handsets or pay the full, unsubsidized cost of the phone. Each company also has announced a new pricing format that combines unlimited voice and texting with a defined data plan, ranging from 300 megabytes (MBs) to 50 gigabytes (GBs). The iPhone continues to provide a boost to both AT&T and Verizon postpaid net additions. In the third quarter of 2013, AT&T did not break out specific iPhone sales for the quarter; however, Verizon reported 3.89 million iPhones sold. With Verizon Wireless expanding its LTE network to 301 million of the overall population (POPs) as of September 2013, and AT&T expanding its LTE network to 250 million POPs as of the same date, both carriers are focusing their handset offerings toward LTE devices. We believe the current iPhone models (and future iPhone models) could be key components of their portfolios. In March 2012, Verizon Wireless announced it was planning to introduce only new devices that support the 4G LTE network. We believe this will help boost Verizon’s percentage of customers on its LTE network and will allow increased network efficiencies, as LTE is a cheaper and more efficient network than the older CDMA variations now operating on Verizon’s network. At the end of the 2013 third quarter, Verizon had 38.0% of its retail postpaid customers on LTE devices, up from 17.0% a year earlier. INDUSTRY SURVEYS TELECOMMUNICATIONS: WIRELESS / JANUARY 2014 1 Verizon and AT&T launch family data plans and family of device data plans Verizon’s Share Everything Plan allows for unlimited voice and texting for $40 a month per smartphone, and data plans starting at $50 for 1 gigabyte (GB) and $60 for 2 GB, and increasing in 2 GB intervals to $100 for 10 GB. These plans allow up to 10 wireless devices to share voice minutes, texts, and data. Tablets can be added for $10 a month, notebooks for $20, basic phones for $30, and smartphones for $40. Meanwhile, AT&T, which decided to
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