) competes with both Verizon (
) and Sprint (
) in the mobile business, with over 45% of its stock value stemming
from mobile phones and plans by our estimates. Comparatively, we
estimate that roughly 42% of Verizon's stock value is generated by
mobile phones and plans and close to 43% for Sprint. Our price
estimates for Verizon and Sprint are within 6% of current market
values, while we remain roughly 30% above market value for
AT&T has historically lagged behind its main competitor
Verizon when it comes to investing capital in upgrading and
improving its wireless network. The load on AT&T's network
increased tremendously in 2007 with the introduction of Apple's (
) iPhone, and the company was a little late in increasing spending
on its wireless infrastructure. As a result, Verizon shot past
AT&T in total subscriber count in 2009.
However it seems that while Verizon's spending has come down
slightly, AT&T has accelerated its wireless capital spending
significantly. As per our estimates, AT&T should match Verizon
in terms of capital expenditure per subscriber in 2010. The chart
below depicts the trend in this metric over the past four
Key Incentives for AT&T to Increase Capital
AT&T has been continually criticized for the quality of its
network, which can be partially attributed to heavy data usage from
iPhone users for which it appears AT&T's network was not
prepared. The data usage has exploded in the last couple of years
and, consequently, AT&T has been upgrading its 3G networks to
improve data access continuity and data speeds. Additionally, the
roll-out of its next generation 4G long term evolution (LTE)
network has necessitated additional capital spend.
Modify the chart below to see how changes in capital
expenditure could affect AT&T's stock value.
Will Verizon's Capital Expenditure per Subscriber
Continue to Decline?
We believe that it is unlikely that capital expenditures for
Verizon will decline by any significant amount, given the fact that
the carriers will continually invest in network upgrades and
maintenance in order to improve data speeds and encourage more
subscribers to attach data plans. Higher attach rates will drive
greater data revenues.
Modify the chart below to see how changes in SMS and data
revenue per subscriber could affect Verizon's stock value.
However, given that Verizon has already launched LTE in many of
its markets, its capital expenditure could potentially moderate in
future years as it nears completion of the network.
Modify the chart below to see how a reduction in capital
expenditure below our baseline forecasts could affect Verizon's
You can see the complete analysis of our $37.84
Trefis price estimate for AT&T's stock here
You can see the complete analysis of our $31.69
Trefis price estimate for Verizon's stock here