You’d think by this point in time, AT&T (NYSE:T) and Verizon Communications (NYSE:VZ) — after both being in business for years — would pretty much be carbon copies of one another. Both do land-lines, both do wireless, and it’s not like either offers something the other doesn’t. Their pricing plans are pretty much identical, too.
For cryin’ out loud, telecom is practically a commodity, and these two behemoths have made that industry a two-horse race … how different can they really be?
Yet somehow, there’s little doubt that Verizon is a superior investment to AT&T. So what gives?
Numbers Don’t Lie (But They Don’t Fully Explain, Either)
Just so we’re all on the same page, Verizon earned 68 cents per share last quarter, topping estimates of 65 cents, and easily topping the year-ago bottom line of 59 cents. Revenue of $29.4 billion was a 4.2% increase of Q1 2012’s top line.
The growth rates from last quarter are pretty much on par with the growth we’ve seen since the beginning of 2012, when so-called data plans became the norm just a few months after the advent of smartphones hit its full stride.
AT&T, on the other hand, has yet to post last quarter’s results (it reports April 23). As of the latest look, however, the pros are looking for a profit of 64 cents per share, and revenue of $31.75 billion. That would be a 6.6% increase of last year’s per-share income of 60 cents, but a slight contraction of AT&T’s top line.
Still, the two sets of results are comparable enough to reprise the question: Why have VZ shares gained more than twice as much as T shares have during the past six months?
This is one of those times where the intangible and off-the-books factors are trickling into the market’s mind-set. Three of them stand out, all in favor of Verizon.
1. More subscriber growth: Some would argue it’s a cause for stronger growth, while others would say it’s an effect of growth initiatives. Either way, Verizon is building its customer base at a faster clip.
Last quarter, Verizon Wireless added 677,000 subscribers. The telco company also added 188,000 broadband and 169,000 cable television subscribers to its ranks. AT&T has yet to post last quarter’s results, but if Q4 is any indication, Verizon probably outperformed its biggest competitor.
In the fourth quarter of 2012, Verizon added 2.2 million new retail wireless accounts. It also made dents in the world of cable and internet, picking up 134,000 cable subscribers and 144,000 broadband customers. For comparison, AT&T only added 780,000 postpaid subscribers in the fourth quarter of last year (plus 246,000 new mobile devices). AT&T fared better on the fiber-optic internet and cable TV fronts, with subscriber growth of 609,000 and 192,000, respectively. Still, when it was all said and done, Verizon was able to attract greater overall numbers than AT&T did in the fourth quarter, and that’s not likely to have changed in one quarter.
2. More LTE: Even as recently as a year ago, access to so-called “long-term evolution” (or LTE) mobile web wasn’t necessarily a deal-maker or breaker. Now that smartphones are full-blown web interfaces and tablets are best-utilized when connected anywhere and everywhere, though, the need for higher-speed LTE connectivity has become very real.
As you might suspect, Verizon’s LTE coverage is available to more American residents than AT&T’s. Verizon’s network reaches 270 million U.S. residents, while AT&T’s is available to 170 million people. AT&T’s is technically faster, but the average consumer isn’t clocking their LTE connection’s speed; “pretty darn fast” is fast enough.
3. Average revenue per account: While more subscribers clearly mean more growth, sometimes it’s more effective to simply get more money out of your existing customer base. Verizon excels at it, reaping an average of $150.27 per month from each of its postpaid wireless subscribers last quarter, and $107.15 from each of its wireline customers.
Meanwhile, AT&T reported average revenue per wireless customer of $64.98 for the fourth quarter of 2012. The company doesn’t post its average revenue per wireline customer, though that might not be an apples-to-apples comparison with Verizon’s business. AT&T is much deeper into the cable and internet (and ‘bundling’) business.
To be fair, both companies changed their pricing plans around the middle of last year …Verizon’s “Share Everything” and AT&T’s “Mobile Share.” But, in the end, the pricing structure was roughly the same for each and doesn’t account for such a wide disparity between the per-user revenues for each carrier — Verizon is just much more efficient than AT&T is at getting more out of each customer.
As was noted, based on the accounting statements alone, it’s not clear how Verizon is superior to AT&T. Yet in all the areas that don’t show up on an income statement or a balance sheet, Verizon is leaving its biggest competition in the dust.
It’s those intangibles that are making Verizon’s accounting statements and its shares so much more attractive.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.