Analysis of the financial performance of the Wireless Industry
Firms in the wireless industry maintain and operate transmission and switching facilities to deliver telecommunication services through the airwaves. Major activities of companies in this industry include the provision of wireless communication products and services, wireless telecom services, wireless messaging services, and other wireless services (Hoovers, n.pag.). Top US companies in the wireless industry include Verizon, AT&T, T-Mobile, and Sprint. Other globally renowned companies include China Mobile, America Movil (Mexico), Orange (France), NTT DoCoMo (Japan), Vodafone Group (UK), and Deutsche Telekom (Germany). Insight research estimates the total global revenue of wireless services at $1.2 trillion (Hoovers, n.pag.). In terms of subscription, China, Indonesia, India, and the US have the highest number of subscribers. Emerging markets in Eastern Europe, Middle East, and Africa offer increased chances for revenue growth (Hoovers, n.pag.).
In the United States, almost 1,600 companies are involved in the wireless telecommunication service industry. The total combined revenues for these companies is approximately $220 billion (Hoovers, n.pag.). Currently, the number consumers subscribed to wireless communication in the US exceeds 290 million and the wireless penetration rate is estimated at 95% ("Wireless Telecommunications Carriers Industry (NAICS 51332). This can be attributed to the increased usage of smartphones and tablets among consumers. The Federal Communications (FCC) stated estimates the growth of wireline internet connections will decline while the growth of broadband connections will increase. An analysis of two major wireless companies in the US can provide a clear picture of how the industry is performing financially. The selected companies are AT&T and Verizon.
AT&T Inc.
Provides telecommunication services to consumers and businesses in the US. It offers a range of telecommunication services such as wireless communications, broadband/data and internet services, managed networking, and long-distance services ("AT&T Inc." 4) The AT&T Mobility segment of the company is responsible for providing wireless services such as voice and data communication services, and prepaid and post-paid service plans. For the financial year ending December 2012, AT&T recorded revenues totalling $127,434 million ("AT&T Inc." 27). This represented an increase of 0.6% over revenues for the FY2011. The company’s operating increased by 41% in FY 2012 when compared to operating profits for FY2011. The company’s net profit for FY2012 was $7264 representing an increase of 84.2% of net profits recorded in FY2011 ("AT&T Inc." 27). Out of the company’s four operating market segments, the wireless segment generated the highest amounts of sales representing 52.4% of the total revenue. As compared to the previous year (FY2011) revenues in the wireless segment increased by 5.6%. The wireline segment recorded a decrease of 1% over revenues in the previous period ("AT&T Inc." 27).
Verizon Communications Inc.
Verizon is a US multinational corporation with presence in more than 150 countries in the world. The company is one of the industry leaders in the provision of information, communication, and entertainment products and services. Verizon’s operations are divided into two business divisions: Verizon wireline and Verizon wireless. Verizon wireless segment comprises of Cellco partnership, a former joint venture between Vodafone and Verizon. Verizon recently acquired all stakes in Verizon wireless from Vodafone (Verizon Communications Inc. 4). Verizon wireless’ communications services and products include data services and wireless voice.
Analysis of the company’s revenue shows that Verizon recorded revenues totalling $115,846 million in the FY2012. This represented an increase in 4.5% over the total revenues recorded in FY2011 Verizon Communications Inc. 23). Verizon Wireless segment generated 65.5% of the total FY2012 while the wireline segment recorded revenues of 34.4%. The revenues in the wireless division increased by 8.1% when compared to revenues from the previous FY2011.
Handset Subsidizing and its effects on companies
The smartphone revolution is associated with high performing and advanced handsets sold at high prices. In order to enable consumers to afford the high mobile handsets, wireless telecommunication companies adopted a consumer ownership model that consists of a subsidized handset with a commitment of 18-month or 2-year contract plan. Consumers are tied to subsidized handsets until the maturity of their service plans without leaving their subscription plans. The high costs of mobile handsets such iPhones are offset by wireless telecommunication companies as a form of subsidy (The Impact of New Carrier Business Models). This strategy enables mobile phone carriers to avoid losing their subscribers to competing firms. On their part, consumers are required to pay specified monthly charges for the duration of the contract period.
Handset manufacturers such as Apple, Google, and Samsung Electronics benefit heavily from handset subsidizing because network carriers such as Verizon and AT&T purchase the handsets from these companies at full prices and offer them to customers at reduced prices (Moren 24). The network carriers are often required to provide upgrades at the maturity of the contract period and this means that new versions of the phones have to be issued to consumers. In order for network carriers to benefit more from handset subsidizing, then they must raise the prices of their service plans. It also enables firms to recoup the increased costs incurred during the purchase of the handsets. The major challenge is the short product lifecycle of smartphones because of the rapid innovation. Consumers would want to be tied in a contract where s/he continues to pay for obsolete technology.
I think handset subsidizing is a good financial move for most network carriers. First, it attracts a high number of consumers who would continue to use wireless products and services from the company while they are still tied to their service contracts. Even if network providers increase contract costs because of reducing contract duration, consumers are driven by satisfaction and would always want to own new gadgets. Given the high initial costs of entry, they will be forced to subscribe to contract plans offered by network companies. Second, the rate at which technology is changing shows that consumers will continue to purchase new handsets. This gives network carriers an upper hand in determining the contract pricing power.
Analysis of 2012 financial performance of Sprint Nextel Corp, Verizon Communications, and AT&T shows that the combined revenues collected from contract customers increased by the 6.2% (Sullivan, and Leah 65). Share prices for Verizon and AT&T have also increased over the last trading quarter.
Prediction of the Wireless Industry
With the current wave of technological innovations, the wireless industry is expected to grow tremendously because industry players will develop and deploy advanced wireless technologies that are certain to increase the growth of mobile and wireless data services ("Fastest Mobile Networks 101). Network carriers have rolled out 4G and 4LTE network technologies and prospects are high that more advanced and speedier technologies will be developed during these periods (Sullivan, and Leah 63). The future for the wireless industry is bright and profitable. Companies in this industry will continue to register increased revenues because of the increased number of subscribers. The changing handset subsidizing business models will enable network carriers to generate increased revenues from network carriers.
Work Cited
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"Wireless Telecommunications Carriers Industry (NAICS 51332)." United States Wireless Telecommunications Carriers Industry Report (2013): 1-218.
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Moren, Dan. "Share The Data With Verizon's New Shared Plans." Macworld 29.9 (2012): 24. Academic Search Premier. Web. 3 Dec. 2013.
Sullivan, Mark, and Leah Yamshon. "America's Fastest Wireless Networks." PC World 31.8 (2013): 61-74. Academic Search Premier.
