The two biggest mobile operators in the U.S. are fiercely competitive and closely matched in size. So will AT&T's proposed multibillion-dollar acquisition of Leap Wireless change the balance?
Market figures and interviews with analysts suggest it won't, but they also show that today's complex mobile industry may need new ways to define success.
Late last week, AT&T announced its intention to acquire Leap, operator of the Cricket prepaid mobile service and one of the last remaining large regional carriers in the U.S. In addition to paying about US$1.2 billion for Leap's stock, AT&T will assume the company's debts of $2.8 billion. Leap has approximately 5 million customers, whom AT&T plans eventually to migrate from Leap's CDMA network to its own GSM-based technology. Eventually, they'll converge on 4G LTE, which both companies already use.
At first glance, it looks like a deal that will extend AT&T's subscriber lead over Verizon Wireless. In a presentation on its website, AT&T says it has 107.3 million "wireless customers," while Verizon's site claims just 98.9 million "retail connections." But it turns out those two figures aren't as similar as they may seem. AT&T acknowledges that the right number to compare with Verizon's total, counting just postpaid and prepaid subscribers, is just under 77.9 million.
There are many different ways of measuring a carrier's size, and counting up accounts, retail or not, may not be the most meaningful anymore. The figure Verizon gives is lower, but it leaves out several types of customers that could make up the difference and then some.
"Verizon Wireless is the largest wireless carrier in the United States based on retail connections, including both postpaid and prepaid. Some other carriers include reseller connections and connected devices, such as e-readers and machine-to-machine connections in their numbers," Verizon spokeswoman Robin Nicol said in an email message.
While phones are typically associated with a particular customer who regularly pays for service, other devices and uses of mobile networks can't be defined so easily. For example, users of Amazon Kindle e-readers get access to AT&T's network without ever paying a monthly bill because the cost of the service is built into the hardware price. Likewise, remote sensors in vehicles and buildings connect to a network but don't represent a big monthly payment or, possibly, any recurring revenue at all.
Still, those alternative connections are one possible measure of a service provider's success -- or failure. Verizon stopped reporting machine-to-machine and other connections after 2011 because they were falling, analyst Roger Entner of Recon Analytics said.
In 2011, Verizon's adjusted results for "wholesale and other connections" declined 77.5 percent from the previous year. Beginning in the first quarter of 2012, those connections were not included in the company's quarterly or annual reports.
"They stopped recording it because they failed in this segment," Entner said. At press time, Verizon had not responded to a question about why it stopped reporting non-retail connections.
Despite Verizon's apparent setbacks in some businesses, analysts estimate the company would still beat AT&T if both companies put everything on the table. And Verizon will remain in the lead even after AT&T absorbs Leap's accounts, they said. Including everything, Verizon would still be the biggest by 2.5 million connections after an AT&T-Leap merger, according to Chetan Sharma of Chetan Sharma Consulting. Entner also estimates Verizon would remain ahead.
Why does being the biggest matter? "Bragging and marketing rights," Sharma said.
Neither company calls itself the largest carrier in advertising today, instead promoting the size and speed of their networks. Carriers have advertised their size in the past, Entner said. That changed with the arrival of the Obama administration, which, among other things, blocked AT&T from acquiring T-Mobile USA.
"They all stopped when the current administration decided to go after big carriers," Entner said. "They probably figured out, 'Oh, I don't have to put a target on my head.'"
These days, simply adding up subscribers, accounts, connections or any such figures into one number is an outdated way to gauge a service provider's strength, said Phil Marshall of Tolaga Research. He cited the example of smart utility meters.
"Suppose you provision 100,000 meters that are dribbling a small number of bytes over your network. Do you count that the same as a voice subscriber that's spending $50 a month?" Marshall said. "If you're going to count the number of subscribers or the number of connections, they have to be tiered, because they're just so different," Marshall said.
In the U.S. and most developed markets, it's no longer a land-grab for subscribers, because almost everyone already has a mobile phone, he said. AT&T didn't acquire Leap primarily for its 5 million budget-conscious subscribers, but for assets that will help it build a stronger LTE network, according to Marshall.
"In reality, it's the spectrum, the sites, and to a lesser extent, the subscribers," he said.
Marshall thinks the industry will change to another way of gauging the relative size of carriers. One measure might be their overall revenue, he said. By that measure, Verizon Wireless appears to beat AT&T once again: For the first quarter of this year, it reported total operating revenue of $19.5 billion, compared with total operating revenue for AT&T's wireless segment of $16.7 billion.
Yet another way to look at size is in terms of spectrum, the licensed frequencies over which mobile traffic flows. By that measure, both of the big carriers lose out to Sprint, which is usually ranked as the third-largest operator.
Sprint only has about 55 million customers, but following its recent acquisition of Clearwire, Sprint has an average of approximately 200MHz of spectrum licenses in the top 100 U.S. markets. By comparison, J.P. Morgan analysts estimated in December that Verizon had an average 105MHz in those markets and AT&T had 89MHz. Leap would give AT&T another 20MHz, still far short of Sprint's total.
Not all spectrum is equally valuable or equally good for each area. But wider spectrum bands can carry more traffic to more subscribers. It's an asset carriers can keep using to accommodate more users or higher data use, Recon's Entner said. "It allows you to be more competitive."
Stephen Lawson covers mobile, storage and networking technologies for The IDG News Service. Follow Stephen on Twitter at @sdlawsonmedia. Stephen's e-mail address is stephen_lawson@idg.com