Slowing Sensation at Cingular

[bobolito]

Slowing Sensation at Cingular
By Scott Moritz
Senior Writer
10/19/2005 11:01 AM EDT
URL: http://www.thestreet.com/tech/scottmoritz/10248194.html


Cingular is showing signs of thinning at the top.

The wireless joint venture of SBC (SBC:NYSE) and BellSouth (BLS:NYSE) managed to improve its bottom line despite posting a second consecutive disappointment on the subscriber front.

Cingular added 867,000 net new subscribers in the third quarter ended last month, well below the 1 million or more analysts were looking for. And the company's defection rate, or churn, increased 10 basis points from the previous quarter to 2.3%. The company is the nation's largest cell phone service with 52.3 million subscribers.

Financially, the telco was a little more solid, posting earnings of $222 million on service revenue of $7.7 billion. That compares with a profit of $147 million on the same amount of service revenue a year earlier. On an adjusted basis, excluding one-time charges, net income rose to $504 million from $317 million in the second quarter. Average revenue per user in the third quarter was flat with the prior period at $49.65.

Some observers see Cingular's slowing subscriber growth as a sign that the industry itself may be finally reaching a plateau. With two of every three people in the U.S. already owning cell phones, the pool of new customers has nearly been drained.

But some investors saw it is an encouraging sign that despite the cooling trend, Cingular managed to widen its margins a bit.

"Next Wednesday, October 26, marks the first anniversary of Cingular's life as the largest wireless company in the United States, and our third- quarter results show once again that we are making solid progress delivering on the promise of the merger," said CEO Stan Sigman, in a press release Wednesday.

Cingular's smaller-than-expected net subscriber numbers may also reflect the company's effort to clean out some of the miscounted customers that have plagued its rolls for the past year.

Last week the Atlanta-based telco said it had overstated its first-half subscriber count by 154,000. That move came just nine months after Cingular reduced its reported fourth-quarter gross-subscriber gains.

Still, some analysts wonder if Cingular is struggling to keep its customers, particularly those who were originally with AT&T Wireless. With the two-year contracts now expiring after number portability rules went into effect, industry observers are looking for consumer trends that may favor one carrier over another.

So far, with new subscriber growth still humming, telcos have not had to slash prices to attract users. But as the industry leader, Cingular's sluggish performance may mean rivals are chipping away at its business. Or that the sector is headed for some slack times.

Wall Street will be watching next week for reports from Verizon Wireless -- a joint venture between Verizon (VZ:NYSE) and Vodafone (VOD:NYSE) -- and Sprint Nextel (S:NYSE) .

http://www.thestreet.com/_yahoo/tech...FREE&cm_ite=NA

[bobolito]

I think Cingular can easily set a record net adds if they wanted to. All they have to do is lower prices on both voice and data, and create better customer retention incentives. However, this will hurt their bottomline which is what they are focusing on right now, so there is a tradeoff. People looking for a better deal are leaving Cingular and going with T-Mobile and Sprint.

I believe Cingular will concentrate on net adds once Verizon gets close to taking over the #1 spot. Not sooner.

[Jay2TheRescue]

I think Cingular can easily set a record net adds if they wanted to. All they have to do is lower prices on both voice and data, and create better customer retention incentives. However, this will hurt their bottomline which is what they are focusing on right now, so there is a tradeoff. People looking for a better deal are leaving Cingular and going with T-Mobile and Sprint.

I believe Cingular will concentrate on net adds once Verizon gets close to taking over the #1 spot. Not sooner.

I agree. Once you're king of the hill you don't want someone rushing up th ehill to push you over. They probably won't do anything till they see Verizon on the horizon... Hey, that rhymes, LOL...

[Andy]

I think Cingular can easily set a record net adds if they wanted to. All they have to do is lower prices on both voice and data, and create better customer retention incentives.

Verizon really doesn't have lower prices than Cingular and has had record net adds for a while...

[bobolito]

Agreed. But we all know why that is. Verizon has reputation. Cingular doesn't. So, in order for Cingular to do something like this, they'll need to resort to lowering prices.

[Fire14]

Cingular CFO Sees Improving Trends In ARPU Declines

NEW YORK -(Dow Jones)- Cingular Wireless (CIW.XX) Chief Financial Officer Pete Ritcher believes the trend of declining average revenue per user is improving.

The average revenue per user fell to $49.65 from $50.25 a year ago, a result of converting more customers over to its cheaper family and rollover plans. During a conference call to discuss its third-quarter results, Ritcher said the decline was less dramatic than in the second quarter.

"We've seen a real stabilization over the last four quarters," Ritcher said. He expects that trend to continue into the fourth quarter.

The nation's largest wireless carrier by subscriber base reported third-quarter net income of $222 million, up 56% from $142 million a year ago. The year-earlier figure assumes Cingular and AT&T Wireless were a single entity, although their merger wasn't completed until last October. Excluding costs related to the merger and the hurricanes, Cingular earned $504 million in the period.

Revenue, meanwhile, more than doubled to $8.75 billion from $4.29 billion a year ago.

Atlanta-based Cingular, which is jointly owned by SBC Communications Inc. (SBC) and BellSouth Corp. (BLS), added 867,000 net new subscribers to bring its total to 52.3 million.

Cingular's normalized operating margin increased by 300 basis points to 31.6%. Ritcher believes it is proof the integration with AT&T Wireless is working. The company is using its scale to enhance its purchasing power and lower handset costs.

Chief Operating Officer Ralph de la Vega said the company was ahead of or on track with most of its integration efforts. Cingular cut 15,000 full-time equivalent jobs for the year, and shed 4,000 for the quarter.

The wireless carrier is ahead of schedule in moving customers over to the Cingular network from the AT&T Wireless one, de la Vega said. He said that the migration should help drive wider use of text messaging and other data services.

While Cingular has made progress in cutting costs and eliminated older networks, Ritcher, the financial chief, said he believes there are still a lot of opportunities for additional cuts.

"We haven't hit any sort of plateau," he said. "There are still good sequential cost-cutting opportunities going into the fourth quarter."

There remains a lot of "heavy work" on the network integration end, he said, adding it represents more opportunity going into 2006.

Despite the decline in average revenue, Ritcher said he was pleased with the new customers coming in, suggesting they would yield higher revenue.

"We're happy with the quality of the subscribers in our base, both on a pre and post basis," he said.

For the next generation, Cingular is looking to upgrade its network to third generation, or 3G, in 15 to 20 markets by the end of the year, de la Vega said.

On the possibility of rebrand, Ritcher said there is no interest in changing the name of the service. There have been rumblings of various name changes, especially with SBC's pending acquisition of AT&T Corp. (T).

Overall, de la Vega said he remains bullish on the wireless industry, especially with the potential to further penetrate the market. He added the rising energy prices and generally weaker economy may spur new customers to a prepaid service.

[Gideon H]

Didnt I say this was going to happen? I knew this was going to happen...

The slowing is definately because of all the bad things people hear about Cingular, the nonexistence of a reputation, and their prices.

[Airb330]

Cingular really is too expensive. Go into a corporate store and the prices will shock you in many cases I bet. Cingular still needs something like Verizon's New Every Two to retain customers. Verizon users get many phones for free when resigning a two year....Cingular customers get nothing plus an $18 upgrade fee, making them too expensive.

[bobolito]

Cingular customers get the same pricing on phones as new customers. New customers pay a $36 activation fee while existing customers pay $18 upgrade fee. It may not be much, but we can't say we get nothing.

[Andy]

Existing Cingualr customers pay $18 to get a new phone and resign for two years? You've got to be kidding me, Cingular. This is lame!!!!

[viewfly]

Geez, would you like some cheese with that whine?

Most times there are price differences between store and Cingular on line. Today, on line, there are 3 phones out of 22 that are $0. 5 more that are between $19.99 - $39.99. So 8 out of 22 phones that are less than $40. Not to mention that almost everyone agrees that the GSM phones are much nicer than Verizon offerings (shall I mention crippled Bluetooth?... talk about misleading advertising!) . Most of these phones run $250 or much more retail, plus they are world phones. Verizon can't match these last two features at all or anywhere near that price. The Verizon A790 CDMA+GSM world phone would cost a NE2 customer $349-$100 or $249. A NE2 Cingular customer could get a world phone for $0

I have had the $18 fee waive at least 3 times over the years, when asked politely. Considering that a verizon or Cingular customer shells out over $400 a year for service plus taxes (with verizon you must have $35/mo plan and then you get $100 credit for a new phone), it really is a small percentage

[bobolito]

So all the Verizon Any-Two does is discount $100 dollars? I thought it was better than that. If you look at it it's exactly the same way with Cingular. As long as you are elegible for upgrade, you can get $100 discount in phones which is the same as the new price for new customers. If you renew for 1-yr, you get $50 discount, and if you do the 2-yr contract you get $100 off which means every two years you can get $100 off any phone. On top of that, some phones come with rebates which are additional to the discount. So all I see here is that some people don't analyze these things and start talking bull.

[viewfly]

My understanding from Verizon's webpage is that you get a free phone up to a value of $100. So if the web page price is $49., you get it for free. Otherwise, if the phone you desire is web priced at $399, you get $100 off of that price. It not a discount, but a credit.

[Charlyee]

I just got my Verizon phone LG VX-7000, with the NE2. The web price was $99.99 and after NE2 I had a credit of 1c. Ofcourse NE2 only works if you come from a 2 year contract and go into another 2 year contract.

So actually even though they say "New Every Two", it is $100 of the web price for whatever phone one chooses.

[viewfly]

I just got my Verizon phone LG VX-7000, with the NE2. The web price was $99.99 and after NE2 I had a credit of 1c. Ofcourse NE2 only works if you come from a 2 year contract and go into another 2 year contract.

So actually even though they say "New Every Two", it is $100 of the web price for whatever phone one chooses.

Did they actually give you 1C back?

[Charlyee]

Did they actually give you 1C back?

LOL. no, they didn't and what's more I had to the taxes on the full $99.99.

[Andy]

So all the Verizon Any-Two does is discount $100 dollars? I thought it was better than that. If you look at it it's exactly the same way with Cingular. As long as you are elegible for upgrade, you can get $100 discount in phones which is the same as the new price for new customers. If you renew for 1-yr, you get $50 discount, and if you do the 2-yr contract you get $100 off which means every two years you can get $100 off any phone. On top of that, some phones come with rebates which are additional to the discount. So all I see here is that some people don't analyze these things and start talking bull.

Verizon, with NE2 gives you $100 off the price of a phone that a new customer would get, meaning after all is said and done, we get an additional $100 off.

[Tony E!]

LOL. no, they didn't and what's more I had to the taxes on the full $99.99.

Charlyee isn't that you have to pay taxes on the full retail price of the phone?
the times when i did my NE2 Verizon would always charged taxes on the full retail price of the phone and not the new contract discounted price..

[Charlyee]

Charlyee isn't that you have to pay taxes on the full retail price of the phone?
the times when i did my NE2 Verizon would always charged taxes on the full retail price of the phone and not the new contract discounted price..

Hi
Tony, you got me thinking & so I dug up my receipt from 6/18/05 (actually I was quite impressed that I found it). It turns out the phone was $149.99 & $50.00 mail-in rebate. I got it for $49.99 and the tax was on $49.99. Then I did get the $50 back in the mail. So I guess I only paid tax on the discounted price.

I don't know if they made a mistake or if tax laws differ by State.

[Fire14]

Hi
Tony, you got me thinking & so I dug up my receipt from 6/18/05 (actually I was quite impressed that I found it). It turns out the phone was $149.99 & $50.00 mail-in rebate. I got it for $49.99 and the tax was on $49.99. Then I did get the $50 back in the mail. So I guess I only paid tax on the discounted price.

I don't know if they made a mistake or if tax laws differ by State.

I am sure it is different by each states tax laws.
here in NJ you pay tax on the price you paid for the phone depending on which contract you accepted and not full retail.

[Andy]

Charlyee isn't that you have to pay taxes on the full retail price of the phone?
the times when i did my NE2 Verizon would always charged taxes on the full retail price of the phone and not the new contract discounted price..

I thought it was CA law that requires VZW to collect taxes for the full retail price...I read that somehwere.

[Tony E!]

I thought it was CA law that requires VZW to collect taxes for the full retail price...I read that somehwere.

OK so Fire14 is right, it varies by state because like i stated before i always paid taxes on the full retail price of the phone when upgrading my phone with Verizon..

Charlyee, thanks for checking on that, it seems like we always pay extra for everything here in California...

[Andy]

OK so Fire14 is right, it varies by state because like i stated before i always paid taxes on the full retail price of the phone when upgrading my phone with Verizon..

Hence I said that CA law requires VZW to charge you tax on the full retail of the phone.

[Tony E!]

Hence I said that CA law requires VZW to charge you tax on the full retail of the phone.

Ok so what do you want a cookie...lol j/k

Fire also pointed out that it varies by state, and hence that i'm the one that brought up paying tax on the retail price of the phone to begin with...

[bobolito]

Verizon, with NE2 gives you $100 off the price of a phone that a new customer would get, meaning after all is said and done, we get an additional $100 off.

Thanks for the clarification. I wish Cingular had something like that. They have a higher churn yet they aren't doing much to lower it.