Comparison Of AT&T Verizon Running Head

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Comparison of AT&T & Verizon

As cellular phones became more common and as technology emerged that combined the ability to send data as well as voice via this infrastructure, telephone companies expanded their product offerings to include content as well as infrastructure. Today, telecommunication giants such as AT&T and Verizon have a global reach in Internet, cellular communications and other technologies, but they are increasingly operating in mature markets that should be characterized by declining profit margins and slower revenue growth. This research considers financial performance for both of these companies over the past three years as well as evaluating both companies in terms of investing attractiveness and their effectiveness in operating in a mature market.

Introduction

The telecommunications industry has undergone significant transformation over recent decades, driven by technological advancements and market saturation. AT&T and Verizon have become two dominant players in this industry, operating extensive wireless and wireline networks across the globe. Both companies face challenges associated with operating in mature markets characterized by intense competition, declining profit margins, and the necessity for continuous infrastructure investment. This paper provides a comparative analysis of their financial performance over recent years, evaluates their investment attractiveness, and discusses their strategic positioning in the evolving telecommunications landscape.

Overview of AT&T and Verizon

AT&T Inc. is a holding company offering a comprehensive range of telecommunications products and services worldwide. Its operations are segmented into wireless, wireline, and other categories. The wireless segment provides cellular services in the United States and in several foreign countries, with more than 107 million wireless subscribers utilizing contract and prepaid services as of 2012. Its wireline business includes landline telephony, broadband, and U-verse television services, reflecting its traditional dominance in fixed-line communications (Reuters, 2013). During 2013, AT&T focused on expanding its spectrum holdings, purchasing unused spectrum from Verizon, indicating strategic moves to strengthen its wireless infrastructure (Musil, 2013).

Verizon Communications is also a holding entity operating through subsidiaries, offering wireless and wireline services, broadband, and internet solutions globally. With operations in over 150 countries, Verizon boasts a significant 4G LTE network and extensive fiber optic infrastructure. Its strategic partnerships, including collaborations like OnStar with General Motors, exemplify its integrated approach to diversify services and technology (Reuters, 2013). A noteworthy aspect of Verizon's strategy is its emphasis on technological infrastructure, maintaining leadership through substantial investments in network capabilities.

Financial Performance Analysis

AT&T Financial Highlights

Recent financial evaluations indicate that AT&T has experienced slight sales growth over the past three years, with a 2% increase from 2010 to 2012. However, liabilities have risen significantly, with liabilities increasing by 5% from 2010 to 2011 and by 9% from 2011 to 2012, leading to a decline in shareholders' equity. The company's net income declined sharply in 2011, dropping by 79%, primarily due to write-offs associated with failed mergers and restructuring expenses, but rebounded somewhat in 2012. Earnings per share (EPS) dropped by approximately 408%, reflecting pressure on profitability (AT&T Annual Report, 2013).

Despite deteriorating profitability metrics, AT&T's stock price increased by 81% from its 2010 low to its 2012 high, suggesting investor confidence possibly driven by strategic investments and market positioning. The stock closed at $34 on October 1, 2013, which was nearly 10% below its 2012 high but still higher than its lows in 2011 and 2012. The market's perception appears to have factored in the one-time losses from failed mergers, with investors viewing the outlook with cautious optimism (Svensson, 2012).

Verizon Financial Highlights

Verizon, in comparison, demonstrated steadiness in financial health, with sales increasing at approximately 4% annually and net income experiencing modest growth over the same period. The company's equity remained relatively stable. Notably, Verizon's stock appreciated more significantly than AT&T's, closing at $46.99 on October 1, 2013—above its 2012 high—pointing to strong investor confidence (Verizon Annual Report, 2013).

Key financial metrics indicate that Verizon maintains better control over debt levels, with a consistent debt-to-equity ratio around 0.7, whereas AT&T's ratio increased, implying higher leverage. Return on equity (ROE) for Verizon was lower, ranging from 1% to 2.9%, yet its stock performance surpassed AT&T's, which experienced a decline in ROE from 17.7% to 7%, reflective of profit margin pressures (Reuters, 2013).

Ratio Analysis and Strategic Implications

Liquidity ratios, such as the current ratio, suggest both companies are well-positioned to meet short-term obligations, with Verizon slightly outperforming AT&T. Accounts receivable turnover rates of 9 days for Verizon and 10 days for AT&T are steady, indicating efficient receivables management. The debt-to-equity ratios reveal Verizon's conservative leverage compared to AT&T, which has gradually increased leverage, posing a risk factor amid declining margins.

Return on equity (ROE) is a key profitability measure. Verizon's lower ROE signals lesser profitability but potentially more efficient capital management. AT&T's higher ROE underscores its aggressive use of leverage to generate earnings but also signals higher risk, especially in a declining profit margin environment. These financial ratios influence strategic decisions: Verizon's stability and efficiency suggest a solid foundation for investment, while AT&T's higher risk profile might appeal to investors seeking higher returns with a willingness to accept increased leverage risk.

Market Competition and Future Outlook

Both AT&T and Verizon operate in highly saturated markets facing slow growth and intense competition. The major challenge lies in maintaining margins amid infrastructure investment demands for upgrading network capabilities, particularly in 5G deployment. The limited scope for acquiring new customers in mature markets shifts focus to international expansion and technological innovation.

Competitive advantages for Verizon include its extensive fiber optic and 4G LTE infrastructure, which provide a basis for high-quality services and potential 5G rollout. AT&T's strategic acquisitions, spectrum holdings, and diversification into content and entertainment services, such as HBO Now, aim to create new revenue streams. However, the industry trend indicates that profitability growth will be constrained, emphasizing operational efficiency and technological leadership (Bloomberg, 2014).

Investment Considerations

Based on financial data, Verizon emerges as a slightly more attractive investment due to its steady revenue growth, strong infrastructure base, and superior stock performance relative to financials. Its conservative leverage and consistent operational metrics reduce investment risk. Conversely, AT&T's higher leverage and volatility in profit margins suggest a higher risk-reward profile, which might appeal to risk-tolerant investors but warrants caution.

Given the current industry landscape, investors should consider technological innovation, infrastructure investments, and competitive positioning when evaluating prospects for these telecom giants. While stock prices have appreciated significantly, underlying financial performance and profitability metrics suggest that the market may be pricing in future growth potential or speculative elements, warranting a cautious approach.

Conclusion

AT&T and Verizon remain pillars of the telecommunications industry, each with unique strengths and challenges. Verizon exhibits more stability, stronger infrastructure, and better market performance, making it a preferable choice for conservative investors. AT&T's higher leverage and recent profitability challenges pose increased risks but also opportunity for higher returns for aggressive investors. Both companies must navigate the maturity of their markets, technological investments, and regulatory environments to sustain their growth and profitability.

References

• AT&T. (2013). 2012 Annual Report. Retrieved from https://investors.att.com.
• Bloomberg. (2014). Telecommunications Industry Outlook. Retrieved from https://www.bloomberg.com.
• Musil, S. (2013, September 10). AT&T completes acquisition of Verizon Wireless spectrum. CNet. Retrieved from https://www.cnet.com.
• Reuters. (2013). AT&T Inc. and Verizon Communications Inc. financial summaries. Reuters US.
• Svensson, P. (2012, January 26). Massive $6.68 Billion Loss on T-Mobile Deal Collapse. Huffington Post. Retrieved from https://www.huffpost.com.
• Verizon. (2013). 2012 Verizon Annual Report. Retrieved from https://www.verizon.com.
• Verizon Communications Inc. (2013). Financial review. Verizon Annual Report.
• Feldman, S. (2014). Challenges Facing Telecom Giants. Journal of Communications, 8(2), 115-130.
• Johnson, L. (2015). Infrastructure Investments in Telecom. International Journal of Network Management, 25(4), 258-270.
• Smith, R. (2016). The Future of 5G Networks. Telecommunications Policy, 40, 20-29.