Earnings season started last week, but for telecom and internet infrastructure the first big shoes to drop will be Verizon (NYSE:VZ, news, filings) on Tuesday and AT&T (NYSE:T, news, filings) on Wednesday. Because they are so large, any effects from the economic downturn must show up in their results. We can perhaps take their results as a barometer for the entire sector, upon which we can judge the smaller players and specialists. Because they are so large, they tend not to offer much granularity, but as a backdrop they should be able to tell us much.
Landline losses – Both Verizon and AT&T have been losing about 2% of their landlines each quarter, give or take a bit. The general expectation is that the economy will make this worse, some say much worse. Why? Because voice has long been in a transition, and between VoIP, cell phones, and traditional lines – both businesses and consumers really have more lines than they need. So when times get tough, the newer technologies have enough trust that disconnections will be of the older variety. Headlines in December linked AT&T’s layoffs to increased line losses, and I doubt they were wrong. So if both lost just 3% of landlines in Q4, I’d consider that a small victory for them. Just how bad this number is can give us a measure of the economic headwinds faced by the sector, i.e. just how drastically spending is being affected.
Wireless growth – Is wireless penetration topping out? Are we moving onto the top of the S-curve, where growth is limited by the size of the market? We might see signs of this in 2009, but I’m guessing Q4 will be fine on this count. There could be more iPhone related churn from Verizon Wireless to AT&T, and it may be interesting to see if AT&T ‘hurts’ their bottom line by selling too many iPhones this quarter too – haha. I expect to hear lots about how Verizon is now biggest because of their purchase of Alltel, but this metric is just press fodder. The important thing will be who can move the quickest when 4G matures. Verizon Wireless needs to integrate Alltel quickly and efficiently.
IP/Data – On the consumer side, FIOS will no doubt have another good quarter and DSL growth will be slowing as expected. The bigger questions will be on the business and wholesale side, is the economy doing major damage to sales of bandwidth and which types are at risk? My feeling is that there will be a parallel to landline losses, i.e. that the legacy revenues will feel the greatest pinch as economic pressures finally drive customers to newer cheaper technologies like Ethernet and VPNs. Overall, it seems as if wholesale should fare better than enterprise sales, if only because reduced industry capex means less build-it-yourself and more leasing of capacity.
Stimulus – Both companies are likely to make some sort of pitch for a piece of Obama’s broadband stimulus plans, even though neither really needs it. Should be interesting to listen to.
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