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United States | Equity Research Telecom and Data Center Services Data Centers Towers RBOCs & Wireless September 18, 2013 Please see the analyst certification.

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Presentation on theme: "United States | Equity Research Telecom and Data Center Services Data Centers Towers RBOCs & Wireless September 18, 2013 Please see the analyst certification."— Presentation transcript:

1 United States | Equity Research Telecom and Data Center Services Data Centers Towers RBOCs & Wireless September 18, 2013 Please see the analyst certification and important disclosures at the end of this report. Evercore Group L.L.C. and affiliates do and seek to do business with companies covered in its research reports. Investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Jonathan Schildkraut Managing Director (212) Marc Albanese, CFA Vice President (212) Robert Gutman Snr. Associate (212)

2 Outlook: Telecom Advertising Overall, we expect a combination of improving macro trends and increasing competition in wireless to drive an increase in advertising vs –U.S. Telco service revenue expected to grow 1.5% in 2014 to $345B Three Sectors: –Wireless: $212B, 61% of 2014 estimate U.S. Telco spending –Residential: $76B, 22% of 2014 estimate U.S. Telco spending –Enterprise: $57B, 17% of 2014 estimate U.S. Telco spending U.S. Telco Service Revenue Estimate, 2014 (IDC)

3 2 Wireless in 2014 Increasingly Competitive Environment Driven by: –Recapitalized Sprint –Re-energized T-Mobile USA Slowing Subscriber Growth, Increasing Smartphone Penetration, Handset Parity Emphasis on New Revenue Opportunities - Tablets, Digital Life, the Wireless Internet of Things

4 3 Wireless in 2014: Increasingly Competitive Environment VZ and T continue aggressive competition with emphasis on high-end of the market S is recapitalized following a significant investment from SoftBank –Emphasis over last 18 months has been on "iDEN recapture" as the company transitioned customers off of its old network and onto its new CDMA/LTE network. iDEN shuttered on June 30, all subscriber growth going forward will be external. Emphasis on advertising increases dramatically –S to launch hybrid FD/TD LTE Network in Once network reaches critical mass (expected 2Q14), expect significant increase in marketing TMUS completed band harmonization in mid-2013, relaunched brand "uncarrier" and began to offer the iPhone T faces competition at the high-end from VZ and at the low-end from TMUS Dual messages to market - network quality and value pricing

5 Slowing subscriber growth Increasing smartphone penetration 4 Wireless in 2014: Other Competitive Issues Annual Subscription Growth Smartphone Penetration Handset parity - with TMUS beginning to offer the iPhone, carriers have less differentiation on handset and must emphasize other points of differentiation, which may be less tangible –Network quality is hard to measure, and pricing plans are difficult to compare VZ iPhone S iPhone TMUS iPhone

6 5 Wireless in 2014: Emphasis on New Revenue Opportunities Tablets –T: Of the 847K net adds in 1H13, 763K were tablets (+90%) –VZ: Tablets made up +44% of postpaid net adds in 1Q (300K out of 677K) –Shift to shared data plans (18% of postpaid accounts at T and 36% at VZ) help to nudge subscribers into connecting tablets to wireless data plans Digital Life, Cars, The Internet of Things

7 6 Residential in 2014 Residential remains fiercely competitive, but more local in nature OTT offerings pushes companies to increasingly promote brands out-of-region Tied to new home formation - which looks to improve with the macro environment

8 7 Enterprise in 2014 Enterprise continues to lag as economic weakness has hurt spending and elongated sales cycles Wireline operations highly levered to improvements in enterprise spending Expect meaningful increases in spending should macro progress continue

9 8 Disclosures General Disclosures This report is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. The information and opinions in this report were prepared by registered employees of Evercore. The information herein is believed by Evercore to be reliable and has been obtained from public sources believed to be reliable, but Evercore makes no representation as to the accuracy or completeness of such information. Opinions, estimates and projections in this report constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinions of Evercore and are subject to change without notice. In addition, opinions, estimates and projections in this report may differ from or be contrary to those expressed by other business areas or groups of Evercore and its affiliates. Evercore has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Facts and views in Evercore research reports and notes have not been reviewed by, and may not reflect information known to, professionals in other Evercore business areas, including investment banking personnel. Evercore does not provide individually tailored investment advice in research reports. This report has been prepared without regard to the particular investments and circumstances of the recipient. The financial instruments discussed in this report may not suitable for all investors and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. Securities and other financial instruments discussed in this report, or recommended or offered by Evercore, are not insured by the Federal Deposit Insurance Corporation and are not deposits of or other obligations of any insured depository institution. If a financial instrument is denominated in a currency other than an investor’s currency, a change in exchange rates may adversely affect the price or value of, or the income derived from the financial instrument, and such investor effectively assumes such currency risk. In addition, income from an investment may fluctuate and the price or value of financial instruments described in this report, either directly or indirectly, may rise or fall. Estimates of future performance are based on assumptions that may not be realized. Furthermore, past performance is not necessarily indicative of future performance. Evercore salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research. Electronic research is simultaneously available to all clients. This report is provided to Evercore clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Evercore. Receipt and review of this research report constitutes your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion or information contained in this report (including any investment recommendations, estimates or target prices) without first obtaining express permission from Evercore. This report is approved and/or distributed by Evercore, member of FINRA and SIPC. Evercore is a registered broker-dealer offering investment banking, research, brokerage and financial advisory services in the U.S. “Evercore Partners” is the global marketing brand name for the investment banking, asset management and securities services offered by Evercore Partners Inc. and its subsidiaries and affiliates worldwide, including Evercore. The trademarks, logos and service marks shown on this report are registered trademarks of Evercore Partners. Evercore Partners and its affiliates’ United States office locations New York 55 East 52nd Street New York, NY Tel: San Francisco 3 Embarcadero Center Suite 1450 San Francisco, CA District of Columbia 1099 New York Avenue, N.W. Suite 650 Washington, DC Houston 2 Houston Center at 909 Fannin Houston, TX Los Angeles 601 S. Figueroa Street 44th Floor Los Angeles, CA 90017


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