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Why Verizon and AT&T Are Leaving Sprint in the Dust

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As the biggest wireless carriers get bigger, the rest shrink.

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The US wireless industry is shrinking. Or maybe it's growing. It all depends on which wireless giant you have on speed dial.

The highly competitive mobile industry seems to be producing a tricked-out new gadget every week and every company seems to tout that it's more reliable or accessible than its competitors. Yet, two companies are pulling ahead while the rest are just a dropped-call away from oblivion.

Sprint Nextel (S) announced this week that it would be trimming $350 million in costs from its balance sheet by cutting up to 2,500 people from its staff. The layoffs are set to take place by the end of the year and will be company-wide. Management insists that part of the staff reduction is due to improvements in customer satisfaction that's reduced its need for customer service representatives.

Or maybe it's just that they're losing customers.

"Every operator, save Verizon (VZ) and AT&T (T), is now shrinking in most markets," said Sanford C. Bernstein analyst Craig Moffett in a note to investors this week.

Sprint lost a total of 936,000 pre-paid and post-paid customers during the third quarter this year, leaving them with just 48 million customers. Meanwhile, the two-headed monster that is AT&T and Verizon, both added customers to their networks. AT&T grew by 2 million subscribers to a whopping 81.6 million, while Verizon tacked on another 1.2 million during the quarter to give it an impressive customer base of 89 million.

"Verizon and AT&T are increasingly pulling away from the pack in an ever widening split between the wireless haves and the wireless have-nots," Moffett added. "The stark divergence between the haves and have-nots is clearest in financial reports. While margins have gradually expanded at Verizon, and have recovered from a short-term iPhone trough at AT&T, they have dropped precipitously at Sprint."

Distribution of the coolest technology currently on the market is launching Verizon and AT&T above the fray. More than 40% of AT&T's new customers during the third quarter were from people switching to the network to get their fingers on the iPhone, an AT&T exclusive. Since its debut, the iPhone has been set apart by its touch screen technology (something many Apple (AAPL) competitors quickly copied) and its bevy of do-just-about-anything downloadable applications -- Apple announced last week that there are now more than 100,000 apps available.

Meanwhile, Verizon has battled back against the iPhone with an exclusive deal with Motorola (MOT) to sell its latest creation -- the Droid. This touchscreen phone includes a slide-out Qwerty keyboard and Google's (GOOG) Android platform -- an open-source project that allows developers to create their own applications. (See also: Strong Droid Launch Should Worry Apple.)

It isn't just the hippest technology that keeps customers dialing into Verizon and AT&T, it's their infrastructure. While Sprint and Verizon both boast that they're the most reliable network, it really depends on what part of the country you're in. Verizon dominates the Northeast while AT&T reigns supreme in the Southwest. AT&T and Verizon are the major players as far as the number of cities they provide to and the coverage in those cities, while Sprint doesn't have the capacity to even be compared.

Another industry analyst told Minyanville that Verizon is ahead of the curve when it comes to technology. The telecom giant is leading the way for faster, more impressive networks and is the first of the telecom companies to put out a solid plan for upgrading to "4G" technology, he said, with roll-out expected to be completed by 2013.

Editor's note: An earlier version of this story misstated that Motorola was the first to offer the Android platform. It also stated that AT&T has 78 million customers. It has 81.6 million. It also stated that Sprint didn't have offerings to compete with the iPhone and Droid. In fact, it offers two phones with the Android: the Samsung Moment and the HTC Hero.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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