Wireless Operators' Results Seen Solid
By Yukari Iwatani
CHICAGO (Reuters) - Wireless telephone operators are expected to show solid second-quarter financial results when they report next month, bucking the downward trend in the telecommunications industry on the strength of mobile phone usage growth in the United States, analysts said.
``I'm expecting that things will be fine, roughly in line with Wall Street expectations,'' Bill Turner, an equity researcher with Bank One Investment Advisors, said. ``The people that I've talked to are saying the quarter ought to be good, and adds (net subscriber additions) ought to be in line. ARPU (average revenue per subscriber) ought to be fine,'' he added.
Analysts said they expect wireless operators to continue to take advantage of the industry's high rate of growth despite the slowing economy, which has hit other technology and telecommunications sectors hard.
``You are seeing the resiliency of the wireless service market here in North America partly because it's at a point where you are seeing the replacement of wireline voice by mobile phones,'' Jeffrey Hines, analyst with Deutsche Banc Alex. Brown, said, adding that about 40 percent of the U.S. population owns wireless phones.
``People are replacing long-distance usage with mobile phones. They're replacing local usage with mobile phones,'' he said.
Deutsche Banc expects total U.S. subscribers to grow to 121.6 million at the end of the second quarter, compared with 99 million a year ago.
In contrast, major technology companies, including Internet gear maker Cisco Systems Inc. (NasdaqNM:CSCO - news) and telecommunications equipment makers Nortel Networks Corp. (NT.TO)(NYSE:NT - news) and Lucent Technologies Inc. (NYSE:LU - news), have all suffered from a tightening in capital spending.
Even the world's largest wireless telephone maker, Nokia (news - web sites) Corp. (NYSE:NOK - news)(NOK1V.HE), which had been considered immune from the slowdown, has recently announced job cuts and an earnings warning for the second quarter.
Still, the wireless industry is not entirely unaffected by the economy.
Hines pointed out that the U.S. wireless industry could be showing even stronger financial results under better economic conditions. In the past, most countries had seen record subscriber growth or at least a significant acceleration in growth after reaching 40 percent market share, he said.
As it is, analysts expect relatively flat industrywide net subscriber additions in the second quarter from a year ago, or about 5 million to 5.7 million net new subscribers. Net subscriber additions are a key measure of health for the industry.
``If wireless companies can go another quarter and make their numbers, people will say wireless is in a different cycle and a different stage (than the rest of the telecom industry),'' Luiz Carvalho, wireless analyst with Morgan Stanley Dean Witter, said, adding that he believed companies will generally meet expectations.
Among the wireless operators, Sprint PCS Group (NYSE:PCS - news), the nation's fourth-largest wireless operator, is expected to report the strongest results, with about 750,000 to 800,000 net subscriber additions.
Bill Benton, analyst with William Blair & Co., said Sprint PCS, a unit of long-distance telephone firm Sprint Corp.(NYSE:FON - news), has one of the strongest brands in the industry with competitive prices and a wide range of wireless phones.
``When you start penetrating deeper into the mass market, those mass market customers tend to buy on brand and price,'' Benton said. ``Overall they've done a good job in sales and marketing... Sprint is definitely sending signals that they're doing fine,'' he added.
The nation's second- and third-largest wireless operators, Cingular and AT&T Wireless Group Inc. (NYSE:AWE - news), as well as Sprint and AT&T's affiliate operators like AirGate PCS Inc. (NasdaqNM:PCSA - news) are also expected to report solid results.
AT&T Wireless, a unit of AT&T Corp.(NYSE:T - news), the nation's largest long-distance provider, is expected to be spun off from its parent company on July 9.
Analysts said they will be looking at Verizon Wireless' results closely after the operator had a disappointing first quarter.
With wireless operators reporting increasing penetration rates in the U.S. market, attention is turning to the basic financial figures behind the numbers, rather than focusing only on net new subscribers.
Carvalho and other analysts said they would be looking closely at other figures, such as average revenue per subscriber and cost per subscriber.
``The low hanging fruit has been caught, so it's now which companies are better operators,'' Bank One's Turner said. ``I'm more and more looking at cash flow and profitability.'' |
