Regional Bell Operating Companies [RBOC] results outperformed expectations for the second consecutive quarter. Improving wireline revenue and profitability trends helped offset seasonally weak subscriber metrics. Revenue trends were positive as consumer revenue was relatively flat sequentially (excluding national mass market results) and SME showed continued strength. Large business results were mixed. Wireline operating margins at the Bell companies rose 120 bps sequentially, on average, driven by gains of 140 bps and 129 bps at AT&T (NYSE:T) and BellSouth (BLS), respectively. Though the benefits of headcount reductions and merger synergies at AT&T and Verizon (NYSE:VZ) are expected to continue in 2nd half 2006, savings will likely be largely offset by higher fiber spending in the latter half of the year. RBOC broadband net additions totaled 910K, 4.1% below 949K expectation. While net adds of 342K and 128K at AT&T and BellSouth, respectively, fell short of our expectations, Verizon’s 440K adds exceeded 416K estimate due to strong FiOS results. Verizon reported 111K (25.2%, of broadband net adds) FiOS net adds, bringing total FiOS subscribers to 375K. Wireless substitution remains the primary driver of line losses though cable competition is having a greater impact as MSOs expand VoIP availability and market the service more aggressively. Given the potential for near ubiquitous cable VoIP availability by year end, adoption trends could slow as VoIP becomes more seasoned across markets (as early as 2007), barring significant price actions.
Nokia (NYSE:NOK) will acquire Loudeye (LOUD) for approx $60 million and will launch a comprehensive mobile music experience.
Sprint Nextel (NYSE:S) is choosing a technology known as WiMax to build a new wireless Internet network in the coming years. The move marks a significant win for backers of the new technology, such as Intel (NASDAQ:INTC) and Motorola (MOT), while it is a setback for Qualcomm (NASDAQ:QCOM), which is behind a rival technology. Building a nationwide WiMax network could cost Sprint between $1 billion and $4 billion.