Can Anybody Catch Verizon Wireless and AT&T Mobility?

Attackers in the U.S. mobile market have to be optimistic when facing AT&T Mobility and Verizon Wireless, because a rational observer might have a hard time figuring out precisely how any of the smaller providers realistically can overtake the leaders.

AT&T expects postpaid wireless net adds of approximately 500,000 when second quarter 2013 data are reported. AT&T also says  Inc. it has seen “strong” customer additions in the second quarter for U-verse broadband and TV subscribers, year over year.

AT&T also expects second-quarter mobile EBITDA margins to be comparable to the first-quarter. AT&T continues to expect revenue growth of about two percent for the quarter, but profit margins are expected to be down, year over year.

In its first quarter of 2013, Verizon Wireless saw an 8.6 percent year-over-year increase in both service revenues and retail service revenues, with 32.9 percent operating income margin and 50.4 percent segment EBITDA margin on service revenues (non-GAAP), both record highs.

Verizon Wireless added 677,000 retail postpaid net additions, up 35 percent year over year.

Those sorts of figures also point to reasons why it will remain difficult for T-Mobile USA, Sprint or Dish Network to reshape market shares in the U.S. mobile market. The two largest service providers simply continue to take more market share from the smaller providers.

Market share matters. As a rule, market share and profit margin  are related. So as AT&T and Verizon Wireless take more share, their profit margins should grow. In fact, theory would suggest that AT&T and Verizon Wireless, based on their current market shares, should earn profits at twice the rate of the smaller carriers.

T-Mobile USA operating margin was about 25 percent in the fourth quarter of 2012. Verizon Wireless reported first quarter 2013 EBITDA, equivalent to  “operating margin,” of 50 percent on service revenues.

Conversely, it will become harder for Sprint and T-Mobile USA to maintain their own margins if AT&T and Verizon Wireless continue to take more market share.

And new entrants such as Dish Network will start from zero, with no chance of profits for some time.

You might say that is the reason some attackers do not aim to overtake the leaders in an existing market. They want to remake the market, as Skype has done in international long distance. Instead of leading the existing market, the strategy is to essentially destroy the existing market, creating a new market with vastly different revenue and operating cost requirements.