Even during a recession and with their wireline businesses drying up, AT&T Mobility and Verizon Wireless both posted strong third-quarter results, proof that the wireless industry as a whole is strong.

AT&T added 2 million new subscribers, while Verizon added 1.2 million subscribers, and both carriers posted revenue increases. That growth was fueled in wireless subscribers increasing appetite for high-end smartphones and a related surge in customers? data usage.

?We?ve been seeing that AT&T and Verizon have been pulling ahead of the rest of the pack in the mobile carrier space in the U.S.,? said Susan Welsh de Grimaldo, senior analyst at Strategy Analytics, Newton, MA. ?While Sprint and T-Mobile USA have not released their third-quarter numbers yet, given AT&T and Verizon?s strong showing in both the revenue and subscriber space, they seem to be pulling even further ahead this quarter.

?Overall these results show that the wireless industry is really strong, even in the face of the down economy, showing that people want to communicate via mobile,? she said. ?These top-two carriers are targeting people who want a richer data experience on their device, and they are willing to sign a two-year contract to get a subsidized high-end device.

?Sure, they use their mobile devices for texting and talking, but they?re hooked on the Internet, applications and social networking, so AT&T and Verizon are looking to lock-in these high-value consumers who use a lot of data and want an exciting device.?

Ralph de la Vega, president/CEO of AT&T Mobility and Consumer Markets, said in an earnings conference call that growth in mobility is rapidly becoming data-centric.

In terms of strategy, mobile broadband data is a growth area the top carriers are focusing on. That growth is driven by the smartphone space?devices with either a touchscreen or QWERTY input model and a user-friendly mobile Internet browsing experience.

In terms of the actual results, AT&T and Verizon Wireless were neck and neck in terms of data revenue.

For both AT&T and Verizon, data represented around 30 percent of their service revenue.

?Data is becoming a key piece for carriers and one of the real growth areas,? Ms. Welsh de Grimaldo said. ?Statistics are showing good data ARPU growth, and for consumers the user experience of the devices carriers offer is really key.

?We saw AT&T lead this charge with the iPhone and the App Store, and we continue to see strong growth in that area,? she said. ?Verizon announced its partnership with Google, which is its next big move in this area.

?Smartphones with a user-friendly operating system are key, but they are also focusing on updates to their networks for speed?mobile broadband is coming along and continuing to capitalize on that, and both AT&T and Verizon are spending on expanding their 3G network to improve network performance and reduce dropped calls.?

For both AT&T and Verizon Wireless, integrated devices?a.k.a. smartphones?are paramount to their overall strategy, because they are going after the most lucrative wireless consumer base.

While the iPhone continued to reap dividends for AT&T, the results showed that the carrier is not a one-trick pony.

AT&T had 4.3 integrated device additions in the quarter, and of those 3.2 million were iPhones, representing about a third of their growth additions, meaning that two-thirds of first-time customers bought other types of handsets.

?That speaks to the strength of AT&T?s broader device portfolio,? Ms. Welsh de Grimaldo said. ?If you look at activations, net adds, 40 percent of new iPhone subscribers were coming from other networks, but many previous AT&T subscribers also upgraded to the iPhone.

?Overall, AT&T had an excellent quarter, and Verizon also had a very good quarter,? she said. ?Verizon held its own, and both had very good churn numbers.?

Verizon Wireless results
Verizon Wireless reported that it has 89 million total customers, up 25.7 percent; 86.3 million retail customers, up 25.4 percent; and 1.2 million net customer additions during the third quarter, excluding acquisitions and adjustments.

Verizon Wireless achieved a 24.4 percent increase in total revenues compared with 3Q 2008. Its retail postpaid churn was 1.13 percent. The carrier reported that its data revenues were up 48.1 percent.

Verizon Wireless claims that it continued to lead the industry with the highest profit margins.

In the third quarter of this year, its wireless retail (non-wholesale) gross customer additions were up 15 percent over the prior year. On a pro-forma basis, retail gross customer additions decreased by 8.3 percent.

Verizon Wireless had 89 million customers at the end of the quarter, an increase of 25.7 percent year-over-year, and 6.3 percent on a pro-forma basis.

Verizon Wireless is the largest wireless company in the U.S. in terms of total customers and revenues. AT&T is No. 2, followed by Sprint and T-Mobile USA.

Verizon Wireless also claims that it has the most retail customers of any U.S. wireless provider and added 1 million net retail customers in the quarter, excluding acquisitions and adjustments, for a total of 86.3 million retail customers.

Total churn and retail postpaid churn were 1.49 percent and 1.13 percent, respectively.

Revenues totaled $15.8 billion, up 24.4 percent year-over-year and up 4.9 percent on a pro-forma basis.

Service revenues were $13.5 billion, up 23.7 percent year over year and up 6.1 percent on a pro-forma basis as demand continued to grow for data services.

Data revenue grew to $4.1 billion, up 48.1 percent and up 28.9 percent on a pro-forma basis.

Total service average monthly service revenue per user (ARPU) decreased 2.2 percent year-over-year and 0.8 percent on a pro-forma basis to $51.04. Total data ARPU increased to $15.59, up 17.2 percent year over year and 20.7 percent on a pro-forma basis.

Wireless operating income margin, adjusted for merger integration and acquisition costs, was 28.3 percent, up 1 percentage point year-over-year and up 1.4 percentage points pro-forma. 

At the end of the third quarter 2009, retail customers (postpaid and prepaid) represented nearly 97 percent of the company's customer base.

In the third quarter, data revenues grew to 30.5 percent of all service revenues, up from 25.1 percent.

During the third quarter, Verizon Wireless customers sent or received more than 153 billion text messages. Customers also sent more than 2.8 billion picture/video messages and completed close to 38 million music and video downloads.

AT&T Mobility results
AT&T claims that it delivered strong wireless growth in the third quarter. Total wireless subscribers increased by 2 million in the third quarter, up slightly from results in the year-earlier quarter and up 48.1 percent versus net additions in the second quarter of this year.

This was AT&T's best-ever third-quarter net add total and the third quarter out of the past five in which AT&T achieved total wireless net adds approaching or exceeding the 2 million mark.

Over the past 12 months, AT&T's wireless subscriber total increased by 6.7 million to 81.6 million.

Retail postpaid net additions totaled 1.4 million, the second highest third-quarter total in the company's history, behind only the third quarter of 2008, which included the iPhone 3G launch, and were up 20.1 percent versus results in the second quarter of this year.

Total wireless average monthly subscriber churn reached a record low of 1.43 percent, down from 1.69 percent in the year-earlier quarter. Postpaid churn improved from 1.22 percent in the year-earlier quarter to 1.17 percent, a third-quarter record for the company.

Postpaid 3G integrated wireless devices added to AT&T's network in the third quarter totaled 4.3 million, the largest quarterly increase in the company's history.

Over the past year, the number of postpaid integrated devices on AT&T's network more than doubled, and at the end of the third quarter, 41.7 percent of AT&T's 63.4 million postpaid subscribers had integrated devices.

The average ARPU for integrated devices on AT&T's network continues to be 1.8 times that of the company's nonintegrated-device base.

AT&T's third-quarter integrated device growth included 3.2 million iPhone activations, also the company's largest quarterly total to date, with nearly 40 percent of the activations for customers who were new to AT&T.

Wireless data revenues?from messaging, Internet access, access to applications and related services?increased $916 million, or 33.6 percent, from the year-earlier third quarter to $3.6 billion, more than double the company's total in the third quarter two years earlier.

Data represented 29.4 percent of AT&T's third-quarter wireless service revenues, up from 24.2 percent in the year-earlier quarter and 18.4 percent in the third quarter of 2007.

Wireless text messages on the AT&T network exceeded 120 billion, nearly double the total for the year-earlier quarter. Internet access and media bundle revenues also continued their strong growth, according to the carrier.

Driven by data growth, postpaid subscriber ARPU increased 3.8 percent versus the year-earlier quarter to $61.23.

This compares with 2.3 percent year-over-year growth in the second quarter of this year and marks the seventh consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU.

On a sequential basis, postpaid ARPU was up 1.7 percent. Postpaid data ARPU reached $18.37, up 25.0 percent versus the year-earlier quarter and up 3.7 percent sequentially.

Wireless service revenues grew 10 percent to $12.4 billion in the third quarter, and AT&T claims that it delivered substantial year-over-year margin expansion and sequential margin stability.

Margins reflect churn improvements, operational execution to improve operating efficiencies in network and support systems and further growth in the company's base of integrated device subscribers.

These factors offset increased acquisition costs associated with the company's record quarter for iPhone activations.

Wireless operating income was $3.4 billion, up 41.2 percent versus the third quarter of 2008 and up 6.6 percent sequentially. AT&T's wireless operating income margin was 24.6 percent, versus 18.9 percent in the year-earlier quarter and 23.8 percent in the second quarter of this year.

Outlook sunny
While AT&T and Verizon Wireless have seen competition at the lower end of the market, with bundling of text-messaging and voice into unlimited packages, in the third quarter they solidified their places as the top-two carriers in the U.S.

?What we?ve seen from Verizon and AT&T leading the market are their focus on consumers who want compelling devices with applications and data and are willing to spend more each month in order to get that and sign a contract to get a subsidized device,? Ms. Welsh de Grimaldo said.

?A strong component of the marketplace is ready to take their data mobile,? she said. ?The top-two carriers pulling away from the pack, and they are neck and neck heading into the fourth-quarter strong selling season, so it will be exciting to see what happens.

?They have shown that the economy has not dampened people?s interest in mobile, and in fact the wireless industry has grown and held its own.?