Weekly Telecom Notes: Verizon's LTE Advantage, AT&T Hikes Fees And Sprint's Clearwire Bid

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The past week saw quite a few developments in the telecom sector. In a bid to win over Clearwire's remaining shareholders, Sprint ( S ) improved upon its earlier $3 per share bid by 14% in a final offer that also exceeds Dish's competing bid. Verizon ( VZ ) continued to march ahead of rivals in LTE coverage, adding its 497th LTE market this week and announcing the completion of almost 95% of its initial LTE network. AT&T ( T ) informed its subscribers that their monthly bills will now include a 61 cent monthly administrative charge - a 'below-the-line' charge that allows the carrier to improve its top-line without increasing the widely marketed monthly service fees.

Sprint

Sprint raised its bid for Clearwire Tuesday in a last-ditch attempt to win over the company's remaining shareholders who have been clamoring for a better deal. The improved bid stands at $3.40 per share, beating Dish Network's competing bid of $3.30 per share offered in January. Sprint said that the sweetened offer was its 'best and final' one, implying that it isn't willing to enter into a protracted bidding war to acquire the remaining nearly 50% of Clearwire that it doesn't already own.

Some of Clearwire's shareholders such as Crest Financial, who were displeased with the earlier bid, weren't too impressed with the new one either. However, with majority shareholder Sprint unlikely to vote in favor of any counter-bid for Clearwire, this may be the last chance for the company's minority shareholders to salvage a deal before an imminent bankruptcy filing in the coming months.

Clearwire filing for bankruptcy protection wouldn't be in Sprint's favor either since the former's spectrum assets would then have to be auctioned off to pay the debtors before the shareholders. Sprint's majority stake-holding would then count for zilch, and it would have to fight with other deep-pocketed rivals such as Verizon and AT&T for Clearwire's spectrum, making it even more expensive for the third-placed carrier. And it is the spectrum that Sprint is after with its Clearwire acquisition bid. In the top 100 markets in the U.S., Clearwire has around 160 MHz of spectrum on average, which would go a long way in bolstering Sprint's LTE network. Moreover, the two companies already have a deal in place, according to which Sprint will be able to offload 4G LTE traffic onto Clearwire's planned TD-LTE network. (see Sprint Raises Its Clearwire Bid In Final Offer As Bankruptcy Looms )

Verizon

Despite enjoying a commanding lead over rivals in the 4G LTE deployment arena, Verizon isn't letting off the figurative gas pedal anytime soon. The largest wireless carrier in the U.S. recently added six new markets to its ever growing LTE coverage, taking the tally to 497 LTE markets which is almost 95% of its existing 3G footprint. This keeps it on track to complete the initial nationwide LTE deployment by the middle of the year -  a full two quarters ahead of what the company had initially expected. After the end of the second quarter, Verizon will begin its second round of LTE deployment which will see capacity additions to existing markets through the use of small cells and the deployment of AWS spectrum which it acquired from the cable companies last year.

While Verizon is nearing the end of its initial LTE deployment phase, closest rival AT&T isn't expected to reach the same milestone before the end of 2o14. AT&T's LTE network is currently available in about 210 U.S. markets, and will cover about 270 million Americans by the end of this year. Sprint is way behind with its LTE coverage in all of 88 markets across the U.S. as compared to AT&T's 209 and Verizon's 497. With 4G LTE expected to dominate the wireless scene in the years to come, Verizon has done really well to earn this early lead by executing well on its network transition plans. As a result, the company has been exceeding expectations in recent quarters, adding a disproportionate number of subscribers at the expense of rivals. (see Verizon's Dominant LTE Lead Draws New Customers In A Saturated Market )

AT&T

With subscriber growth stalling in a saturated wireless market, AT&T is looking to drive top-line growth through higher subscriber fees. The carrier recently announced the addition of a new monthly administrative fee of 61 cents to the bills of all its postpaid contract lines, effective May 1st. The fee will be charged 'below-the-line', or separate from the monthly service fees that usually appear at the beginning of the phone bill, and be levied on top of the 50 cents per line regulatory cost recovery charge that AT&T already charges. Other carriers such as Verizon and Sprint have already been charging fees under the same heads for quite some time now. AT&T said that the new fee will help it cover the costs of interconnection, cell site rents and maintenance.

While the fee of 61 cents per month ($7.32 per year) may not sound like a lot to an individual subscriber, it adds up to a significant amount for AT&T. With about 70 million postpaid subscribers registered on its network as of Q1 2013, AT&T could generate additional revenues of more than $500 million annually assuming that it doesn't add any more subscribers from hereon. Adjusted for the divestiture of the Yellow Pages business last year, the additional charge could contribute to around 0.3% growth in revenues this year. The carrier had guided for a 2% growth in top-line for the full year 2013, but adjusted revenues grew only 0.9% in the first quarter. It seems as though the measure to levy an additional fee was taken to counter the effect of the saturated wireless market and the lower regulatory fees that the carrier had collected last quarter.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: CLWR , S , T , VZ

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