Carrier Scorecard: Ma Bell Mania

The summer of 2007 was one that Wall Street would like to forget. One reason for the rough quarter was the continued decline of the once high-flying housing industry. [Ed. note: Have you ever bought a high-flying house? They're awful.] Since wireline telecom services are attached to houses, the growth of these services, which includes broadband, is thought to be taking a hit as well. (See US Broadband Growth Slows.)

Each quarter, Light Reading publishes scorecards on the world's most influential publicly held carriers, giving them a grade of A through F based on their financial and business performance. Our previous North American carrier scorecard is right here: Carrier Scorecard: Verizon Makes the Grade.

One thing to note this time around is we've thrown out Bell Canada. They're going private soon anyway and since breaking up is so hard to do, we're saying goodbye early. Plus, they were really boring.

Anyway, receiving a grade of A is tough. You need to show strong growth across the board and obvious momentum for the future. No one gets the top grade this time around, but, as you see, Verizon captured that honor in the second quarter. Let's see how everyone did in the third quarter:

Verizon: B
Last quarter, we were concerned about how well Verizon Communications Inc. (NYSE: VZ) would hold up to AT&T in the wireless sector. AT&T had just started selling the iPhone and concerns of subscriber defection lingered.

But so far so good for Verizon in the third quarter as wireless continued to be one of the company's strengths with no visible effects from the iPhone. (See Verizon's Profits Slip in Q3.)

But while FiOS is no doubt enjoying enormous success from a subscriber standpoint, overall broadband growth is slowing down, which calls into question how much of the FiOS adds are simply DSL cannibalization. If that's the case, how much more room is there for growth?

A bright spot for Verizon's wireline services though was in enterprise. Sales of services to large business are on the rise and Verizon is making a big push into globalizing a lot of these services, meaning enterprise could turn into a nice long-term growth area for Verizon outside the wireless world.

Table 1: Verizon's Q3 2007 Scorecard
3Q07 3Q07 y/y Change
Revenue (Millions) $23,772 $22,459 5.8%
Earnings (Millions) $1,271 $1,922 -33.9%
GAAP EPS $0.44 $0.66 -33.3%
Access Lines 42,316,000 45,973,000 -8.0%
Broadband Subscribers 8,000,000 6,600,000 21.2%
FiOS TV Subscribers 717,000 118,000 507.6%
DirecTV Subscribers 828,000 496,000 66.9%
Enterprise Revenues (Millions) $5,342 $5,229 2.2%

AT&T: B+
Ma Bell was at the head of the class this time around. AT&T Inc. (NYSE: T) revenues are up even when discounting the BellSouth merger, which has been inflating Ma Bell's numbers all year. We're almost in the first quarter of 2008 at which time we'll finally be able to do an apples to apples comparison of the company's year-over-year results.

So here's all that went well for AT&T. U-verse is still growing exponentially and wireless subscriber additions were at an all time high. Thank you, Steve Jobs. (See AT&T Sees iPhone Pop in Q3.)

Table 2: AT&T's Q3 2007 Scorecard
3Q07 3Q06 y/y Change
Revenue (Millions) $30,132 $15,638 92.7%
Earnings (Millions) $3,063 $2,165 41.5%
GAAP EPS $0.50 $0.56 -10.7%
Access Lines 35,811,000 25,641,000 39.7%
Broadband Subscribers 11,716,000 6,913,000 69.5%
U-Verse Subscribers 126,000 3,000 4100.0%
DISH Network Subscribers 1,986,000 640,000 210.3%
Enterprise Revenues (Millions) $4,790 $4,806 -0.3%

Qwest: C-
This grade really could be lower. Qwest Communications International Inc. (NYSE: Q)'s revenues have been on the decline for every quarter this year. The only thing good to happen financially this time around was the one-time multi-billion dollar tax cut the company received that inflated earnings.

But we're going to lay off for one more quarter since new CEO Ed Mueller showed some signs of a pulse by authorizing a $300 million FTTN expansion. (See Qwest to Spend up to $300M on FTTN.) This nod toward next-generation services is encouraging.

Mueller is currently evaluating Qwest's future strategies and will make more announcements in late 2007 to early 2008. Here's hoping, this is only the tip of the iceberg.

Other positives for Qwest came from the enterprise side of the business where it received authorization to receive orders for the federal government's Networx contract. Qwest followed this up by nailing down a ten year deal to provide communications services to the State of New York.

Table 3: Qwest's Q3 2007 Scorecard
3Q07 3Q06 y/y Change
Revenue (Millions) $3,434 $3,487 -1.52%
Earnings (Millions) $2,065 $194 964.43%
GAAP EPS $1.08 $0.09 1100.00%
Access Lines 13,032,000 14,037,000 -7.16%
Broadband Subscribers 2,516,000 1,973,000 27.52%
Video Subscribers 634,000 350,000 81.14%
Enterprise Revenues (Millions) $1,016 $1,024 -0.78%

— Raymond McConville, Reporter, Light Reading

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