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Verizon Communications Inc. (VZ), with a market cap of $149.49B, provides communications, information and entertainment products and services. Verizon operates in two main segments, including Wireline and Verizon Wireless. While Verizon owns the majority share of Verizon Wireless, Vodafone Group (VOD) owns 45% stake in Verizon Wireless, which is the largest wireless communications services provider in the United States. On April 18, 2013, VZ reported Q1 earnings with strong profit but light revenue.
Strong Results from Wireless
For Q1, 2013, VZ’ EPS increased 15% to 68 cents per share as compared to the year-earlier period, beating analysts’ expectation of 66 cents per share. However, revenue of $29.42B was below analysts’ estimates of $29.55B. The highlight focuses on Verizon Wireless, which added 677,000 “postpaid” customers with service contracts, and the wireless revenue increased 6.8% to $19.5B. VZ also activated 4 million iPhones in the quarter, where the total smartphone activations were 7.2 million for the period. The earnings call transcript for Q1, 2013 result can be accessed here at Seeking Alpha.
The management does not expect much EBITDA wireline service margin expansion in 2013, but is positioned to improve the margin in 2014. For the wireless end, wireless margin has a target of 49-50 percent. Verizon Wireless was helped by lower costs and the popularity of its data share plans. On the down side, the management noted the cautious behavior from enterprise customers.
Months after the announcement of Softbank’s (SFTBF.PK) $20B acquisition offer forSprint Nextel (S), the bidding war is heating up with Dish Network’s (DISH) $25.5B offering. DISH’s deal will form a unique combination of pay-TV and wireless if it goes through. Ultimately, however, it is the valuation proposition that will matter. The final winner should be the one that provides Sprint the most long-term value, which would be to allow Sprint to compete in the rapid developing 4G LTE market.
Below is a comparison table for the deals from Dish and Softbank:
|Spectrum End/4G||Sprint and Dish can combine spectrum rights||While Japan’s Softbank and China’s China Mobile (CHL) are pushing TD-LTE forward, Sprint and Clearwire’s best 4G bet is to work with Softbank’s TD-LTE.|
|Edge||Install antennas for wireless broadband||Softbank has a stronger financial backing|
|Cost/Potential||Reduce cost by combining call centers and back-end functions; could result in $11B of cost synergies, including a 3.3 percent reduction in expenses the first year.||Clearwire’s 2.5GHz spectrum is uniquely positioned to be used as a global LTE band, provided a certain band configuration is used.|
|Penalty/Expected Completion||Dish will pay for $600M penalty fee for Sprint to break up Softbank’s deal||Expected to complete by mid-2013|
|Clearwire (CLWR) deal||With Dish’s own $5.15B for Clearwire, Sprint buyout bid is not contingent on Clearwire part||For Sprint, its own bid for Clearwire is contingent on the Softbank deal, as Sprint needs funding|
Sprint Nextel (S) is the third-largest carrier in the U.S., serving 48 million customers directly. On Dec. 7, 2012, Sprint announced an agreement to acquire a 50% stake in Clearwire Corporation (CLWR) it does not currently own for $2.97 per share. With Clearwire’s huge spectrum assets and SoftBank’s (SFTBF.PK) capital backing, Sprint Nextel could soon be a big force to compete in the new landscape as spectrum resources become scarcer and high-speed 4G LTE becomes a widespread standard. In this article, the recent developments for LTE networks for Sprint Nextel and Clearwire will be updated.
Sprint‘s Network Vision
“Network Vision is Sprint’s plan to consolidate multiple network technologies into one new, seamless network with the goal of increasing efficiency and enhancing network coverage, call quality and data speeds for customers across the United States. In addition to deploying a new 3G network, Sprint will roll out LTE nationwide. Sprint has launched 4G LTE in 49 markets – including Dallas, Houston, Atlanta and Baltimore – and sites are on-air and implementation is under way in hundreds more,” as quoted from Sprint’s official website.
In the last Q4, 2012 management discussion, Sprint’s management indicated that the company is not changing the outlook of 12,000 sites for Q1, 2013. Sprint had zoning completed on nearly 29,000 sites and leasing completed on over 27,000 sites, with a 34% increase over Q3 for both. Sprint had doubled the number of cities under construction to over 450, and the company had now launched 4G LTE in 58 cities with nearly 170 more expected to launch in the months to come. With over 8,000 sites on air, the number is nearly doubled as compared to 3 months ago.