AT-T wireless service - Market Share Report, 2Q2006 Verizon Up, Sprint Down, Cingular & T-Mobile

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Market Share Report, 2Q2006 Verizon Up, Sprint Down, Cingular & T-Mobile

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2006-08-03, 3:33 pm

3 August 2006 (NGP)

Sprint reported quarterly results today, and a German business magazine
leaked T-Mobile USA's net additions for the second quarter of 2006, so
we have the the results for the four largest U.S. wireless carriers
(other than the churn and ARPU for T-Mobile). Market share analysts are
now able to use precise numbers for their U.S. market share analysis,
rather than analyst’s estimates. Note that if T-Mobile's numbers are
different than what the magazine reports, then the figures will change
slightly.

It's important to understand that quarterly market share changes are
measured in fractions of a percent; a quarterly change of more than +/-
0.5% is virtually unheard of (unless an acquisition has taken place).
The following table shows what is considered flat, small, moderate,
large, and very large, market share changes:

Flat: +/- 0.05%-0%
Small: +/- 0.06%-0.10%
Moderate: +/- 0.11%-0.15%
Large: +/- 0.16%-0.25%
Very Large: +/- > 0.25%

2Q2006 Market Share Results

Sprint
------
Sprint's market share experienced a steep decline of 0.33%.

Analysts blame Sprint's poor selection of handsets as one of the major
reasons for their continuing decline in market share. Sprint lacks the
popular Motorola Razr handset, which is very popular with Verizon,
Cingular, and T-Mobile users. With wireless number portability,
subscribers are less hesitant to change to a carrier that has the
handsets they desire. Sprint does have the largest high speed data
network, but data has not taken off for any of the carriers, due to the
high cost, relatively low data rates, and the wide availability of free
802.11 wireless hot spots. What was supposed to be the
killer-application has been a big disappointment in terms of actual sales.

Cingular
--------
Cingular was essentially flat, with a tiny 0.04% increase in market
share. Cingular added less subscribers in 2Q06 than in 1Q06, but their
market share stayed steady because of Sprint’s offsetting large decline.

Cingular's flat performance was actually a big improvement for the
nation's largest carrier. Cingular had been experiencing large declines
in market share over the past four quarters, for a variety of reasons.
The carrier has been hammered by their poor performance in independent
surveys of coverage, quality, and customer service. They've been hit by
a class-action lawsuit by former AT&T subscribers. They've had a large
fine by the California Public Utilities Commission upheld, and have been
sued by Sprint for false advertising claims regarding their "fewest
dropped calls" advertising campaign. Cingular has a far, far, smaller
high speed data network than Verizon or Sprint. On the plus side,
Cingular picked up about 5000 additional sales outlets in 2006, when
Radio Shack switched from selling Verizon to selling Cingular.

Cingular expects a decline in market share, and increased churn, as it
attempts to shed its remaining 5 million or so TDMA & AMPS customers
prior to shutting down those networks in 2008. The carrier recently
indicated that they will be raising prices for the remaining TDMA & AMPS
customers, as an incentive to get them to move to GSM. Many will move to
Cingular GSM, but the stick, rather than the carrot, approach, will
cause many subscribers to leave the carrier entirely, as handsets will
not be free for most of these low-revenue customers, yet other carriers
are happy to offer free handsets to new customers. This latest move by
Cingular has attracted worldwide publicity, but it occurred in the third
quarter so the results of this action are not reflected in the second
quarter results.

T-Mobile
--------
T-Mobile's market share remained flat for the second quarter in a row,
with an increase of only 0.04%, the same as Cingular. But while
Cingular's flat performance reversed many quarters of decline, T-Mobile
had been growing their market share at a rapid pace up until 1Q2006.
Subscribers may be tiring of T-Mobile's coverage issues, and deciding
that having a large number of peak minutes isn't as important as
actually having a network that these peak minutes can be used on.
T-Mobile just announced a 1000 minute/$50 family plan, for up to five
people (no night and weekend minutes included), which is much cheaper
than what the competition is offering.

Verizon
-------
Verizon was the only carrier to add market share with a large 0.24%
increase. Verizon was also the only carry to increase its number of net
additions from the number of net additions from the previous quarter.
These increases came at the expense of the other carriers, especially
Sprint. Verizon continues to be top-ranked by independent surveys, in
terms of coverage and customer service. JD Power' and Consumer Report's
surveys have a big influence on buying behavior for many consumers.

CDMA versus GSM
---------------
Sprint does not break out CDMA versus iDEN net additions, but analysts
believe that CDMA represents 85-90% of net additions, and 75-80% of
total subscribers. Using the 85% estimate, Sprint and Verizon added
2.395 million CDMA customers, while Cingular and T-Mobile added 2.150
million GSM customers. This continues the long term trend in the U.S.,
where CDMA continues to outpace GSM in new additions, as well as having
a larger market share. Eliminating iDEN (using the 75% number), CDMA has
a 54% U.S. market share, while GSM has a 46% market share, but the trend
continues to be in favor of CDMA. In reality, the CDMA market share is
slightly higher, because the fifth and sixth largest carriers also use
CDMA, and because the more conservative estimates of Sprint’s iDEN
customers was used.

Raw Numbers
-----------
Market Share
------------

1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006
------ ------ ------ ------ ------ ------
Cingular 32.10% 31.73% 31.22% 30.97% 30.58% 30.62%
Sprint 27.33% 27.31% 27.23% 27.25% 27.95% 27.62%
T-Mobile 11.66% 11.81% 12.12% 12.42% 12.44% 12.48%
Verizon 28.92% 29.15% 29.43% 29.36% 29.04% 29.28%

Analysis: Only Verizon is increasing their market share. Cingular and
T-Mobile are flat, Sprint is in a steep decline.

Subscribers (Millions)
----------------------

1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006
------ ------ ------ ------ ------ ------
Cingular 50.5 51.6 52.3 54.1 55.8 57.3
Sprint 43 44.4 45.61 47.6 51* 51.7
T-Mobile 18.34 19.2 20.3 21.7 22.7 23.35
Verizon 45.5 47.4 49.3 51.3 53 54.8

*Includes 2.1 million subscribers from affiliates acquired.

Analysis: Cingular is likely to remain in the number one spot for at
least another year. Verizon was expected to pass Cingular in late 2006,
but Radio Shack’s change from Verizon to Cingular, and Sprint’s failure
to maintain it’s level of acquisitions from Cingular, mean that it’ll be
2007 before Verizon passes Cingular, if each carrier continues the same
pace of net additions.

Net Additions (Millions)
------------------------

2Q2005 3Q2005 4Q2005 1Q2006 2Q2006
------ ------ ------ ------ ------
Cingular 1.1 0.7 1.8 1.7 1.5
Sprint 1.4 1.215 1.985 3.4* 0.7
T-Mobile 0.86 1.1 1.4 1.0 0.65
Verizon 1.9 1.9 2.0 1.7 1.8

*Includes 2.1 million subscribers from affiliates acquired.

Analysis: Only Verizon is increasing the number of net additions.

Market Share Change
-------------------

2Q-3Q 2005 3Q-4Q 2005 4Q 05-1Q 06 1Q 05-2Q 06
---------- ---------- ----------- -----------
Cingular -0.51% -0.25% -0.39% 0.04%
Sprint -0.08% 0.02% 0.70% -0.32%
T-Mobile 0.31% 0.30% 0.02% 0.04%
Verizon 0.28% -0.07% -0.32% 0.24%

Analysis: Market share changes slowly. Only Verizon has a statistically
significant increase in market share. Cingular and T-Mobile are flat,
Sprint is in a steep decline.

ARPU ($)
--------

1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006
------ ------ ------ ------ ------ ------
Cingular 49.59 50.43 49.65 48.86 48.48 48.84
Sprint 61.00 62.00 65.00 63.00 62.00 61.00
T-Mobile 54.00 54.00 53.00 52.00 51.00 August 10
Verizon 49.03 50.34 50.13 49.36 48.67 49.71

Analysis: Sprint’s ARPU continues its slow decline as Nextel customers
migrate to lower cost CDMA plans, and as iDEN additions fall. Verizon
managed over a $1 increase in ARPU, a significant rise, while Cingular
ARPU rose a modest 36¢.

Churn
-----

1Q2005 2Q2005 3Q2005 4Q2005 1Q2006 2Q2006
------ ------ ------ ------ ------ ------
Cingular 2.2% 2.2% 2.3% 2.1% 1.9% 1.7%
Sprint 2.5% 2.2% 2.1% 2.1% 2.1% 2.1%
T-Mobile 2.3% 2.3% 2.4% 2.3% 2.1% August 10
Verizon 1.3% 1.2% 1.3% 1.2% 1.2% 1.1%

Verizon continues to lead the industry, by a wide margin, in terms of
low churn. The number one reason that subscribers leave a network is
coverage issues, so Verizon’s investment in its network has paid off
handsomely. Verizon is acknowledged by independent sources as having the
best network in the U.S., in almost every region.

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