Sell Verizon (VZ)
This iPhone thing just isn’t working out—for Verizon (VZ) that is.
The thought on Wall Street was that the company’s addition of Apple’s iPhone to its lineup of smart phones would drive Verizon’s smart phone market share higher and increase the all-important ARPU (average revenue per user) number.
But it just isn’t happening. At least not to the degree that Wall Street expected.
Maybe you could pass off the first quarter disappointment on these numbers as birthing pains for Verizon’s new offerings but the second quarter numbers came in much the same. I think we’ve got a trend here and it’s not one that investors in the stock should be happy with. The shares are up 6.71% for 2011 to date and 23.07% for one-year. Both of those numbers are ahead of the gains for the Standard & Poor’s 500 Index. Despite the 5.4% dividend on the stock, I’d take my gains here and look for a better total return play. (Verizon is a member of my Dividend Income portfolio http://jubakam.com/portfolios/ )
For the second quarter, reported on July 22, Verizon did add wireless subscribers to the tune of 1.23 million. Which would have resulted in really great news for the company’s revenue and profit lines except that the new and old users didn’t show much inclination to spend more on their monthly wireless bill by increasing their use of data services. ARPU grew by just 1.9% to $46.62 in the quarter and that was 6.5% below the Wall Street consensus on that measure. Verizon did increase its smart phone penetration among its customers by about 4 percentage points but the company’s smart phone sales as a percentage of sales (60%) continued to lag that of AT&T (70%).
I think this is an issue for a couple of reasons. Read more
Verizon gets the iPhone tomorrow (probably), but who gets the profits?
Verizon (VZ) and Apple (AAPL) will hold a press conference tomorrow to announce, everybody on Earth and the inner planets believes, that Verizon will start selling the iPhone in February 2011.
The big question, though, is price. Will Verizon subsidize iPhone sales to the same degree that AT&T (T) does now? If so Verizon is looking at big sales in 2011 but a substantial ding to earnings. If not, Apple will either see its huge margins on the iPhone, estimated by some Wall Street analysts at 60%, reduced or Verizon will wind up selling the iPhone at a price that makes it much less competitive with phones based on Google’s (GOOG) Android operating system.
The answer to that question depends on which company, Apple or Verizon, turns out to have been most anxious.
Apple badly needs another selling outlet besides AT&T. That company’s network has been slowed by the huge amount of bandwidth iPhone users consume to the point that the slow speed of service has cut into iPhone sales. (And in some cities, the AT&T network has been inadequate, users like my New-York-City-based partner Bob say, from the beginning.) Add in price cuts from Android-based phone makers and Android-based phones that have closed the “coolness” gap with the iPhone, and it’s really not surprising that Android-based phones grabbed 26% of the smart phone market in November, according to ComScore MobiLens, to the iPhone’s 25%. (Android’s share is coming largely at the expense of Research in Motion’s Blackberry, which saw its share drop to 33.5% in November from 37.6% in October.)
But Verizon needs the iPhone perhaps even more than Apple needs Verizon. Every month that AT&T is the sole outlet for the iPhone means another month where Verizon adds fewer customers than its big rival. In the third quarter, according to All Things Digital, Verizon had fewer than 3 million smart phone activations while iPhone activations exceeded 5 million. Verizon is spending billions to upgrade its network and the company can’t afford to fall behind AT&T in market share.
I think Verizon was the more anxious of the two companies. Read more
5 stocks for the next generation Internet
Sigh, another thing to worry about. The U.S. is falling behind in the Internet race.
According to Akamai Technologies (AKAM), average Internet access speeds in the United States were just 18th fastest in the world at the end of the fourth quarter of 2009. And if you rank countries on the percentage of connections with speeds above 2Mbs (Megabits per second), the United States ranks just 40th.
I bet you can guess who’s winning. 62 of the top cities for speed were in Asia. The three top countries for speed, according to Akamai, were South Korea, Hong Kong (which Akamai counted as a country, but don’t tell the folks in Beijing), and Japan. Those three countries were also the only three to average connection speeds higher than 7.5Mbs.
Akamai, which in the business of accelerating Internet content over its global content delivery network (CDN) isn’t the only one to notice.
The FCC (Federal Communications Commission) has sent a 10-year plan to Congress that envisions a new high-speed, broadband Internet as the core of the U.S. communication network. The agency notes that roughly one-third of Americans don’t have high-speed Internet connections because they live in areas without high-speed service, can’t afford high-speed service, or have never signed up for it because they don’t see the benefits. The FCC has proposed diverting money from the Universal Service Fund, which now spends $8 billion collected from surcharges on telephone service to subsidize phone service for rural or poor Americans, adding that to money collected by auctioning off 500 Megahertz of over-the-air spectrum now used by TV broadcasters, and then using that funding for its 100 Squared plan to equip 100 million U.S. households with high-speed Internet at 100Mbs by the end of the decade.
Proponents of the FCC plan—and you might imagine TV broadcasters aren’t exactly thrilled—say that greater access to higher speed Internet connections is critical to U.S. economic competitiveness in the decades ahead. Slower speeds will raise costs for business and consumers by limiting such innovations as digital healthcare networks. New products that require high speed connections won’t be built or used here meaning that the jobs that go with the creation of these new products will go elsewhere. The comparative productivity of U.S. workers will suffer as workers in high-speed countries can more quickly communicate, share work, hold meetings or access data.
Anybody who now suffers with the inefficiencies of a slow or spotty mobile phone connection knows that argument is true.
The crisis, which is what the FCC argues that we’re facing, isn’t a solely U.S. phenomenon. Internet speeds are dropping all over the world, largely because increasing numbers of people are accessing the Internet over relatively slow mobile phone networks. Traffic from narrowband connections to Akamai’s network increased by 41% in the fourth quarter.
In crisis lies opportunity, investors know. So what companies and stocks might benefit from attempt to end the crisis? Read more
Apple’s iPhone to go to T-Mobile and not Verizon in 2010
When AT&T’s (T) exclusive deal expires in 2010, Apple’s (AAPL) iPhone is most likely to find a second home with T-Mobile and not Verizon (VRZN). That’s the conclusion of a note published by analyst Doug Reid of Thomas Weisel Partners and picked up and amplified by AppleInsider.
Here’s his logic. Read more
Verizon vs. AT&T: The winner is the bravest cannibal
There are many ways to cannibalize a business.
For example, there’s simple cannibalism where a company introduces a new product that eats the old. The hope here is that the new product will grow fast enough and carry high enough profit margins to make up for the demise of all revenue from the old line.
And there’s delayed cannibalism where a company introduces a new product that still eats the old. But the hope here is that the new product will replace enough of the revenue from the cannibalized line that the company can make a transition to a totally different product.
No company faces cannibalism happily. It’s eat your old business or die.
And that’s exactly the situation facing AT&T (T) and Verizon (VZ) right now. Read more
