Slowing Sensation at Cingular
Cingular is showing signs of thinning at the top.
Cingular added 867,000 net new subscribers in the third quarter ended last month, well below the 1 million or more analysts were looking for. And the company's defection rate, or churn, increased 10 basis points from the previous quarter to 2.3%. The company is the nation's largest cell phone service with 52.3 million subscribers.
Financially, the telco was a little more solid, posting earnings of $222 million on service revenue of $7.7 billion. That compares with a profit of $147 million on the same amount of service revenue a year earlier. On an adjusted basis, excluding one-time charges, net income rose to $504 million from $317 million in the second quarter. Average revenue per user in the third quarter was flat with the prior period at $49.65.Some observers see Cingular's slowing subscriber growth as a sign that the industry itself may be finally reaching a plateau. With two of every three people in the U.S. already owning cell phones, the pool of new customers has nearly been drained. But some investors saw it is an encouraging sign that despite the cooling trend, Cingular managed to widen its margins a bit. "Next Wednesday, October 26, marks the first anniversary of Cingular's life as the largest wireless company in the United States, and our third-quarter results show once again that we are making solid progress delivering on the promise of the merger," said CEO Stan Sigman in a press release Wednesday. Cingular's smaller-than-expected net subscriber numbers may also reflect the company's effort to clean out some of the miscounted customers that have plagued its rolls for the past year. Last week the Atlanta-based telco said it had overstated its first-half subscriber count by 154,000. That move came just nine months after Cingular reduced its reported fourth-quarter gross-subscriber gains. Still, some analysts wonder if Cingular is struggling to keep its customers, particularly those who were originally with AT&T Wireless. With the two-year contracts now expiring after number portability rules went into effect, industry observers are looking for consumer trends that may favor one carrier over another. So far, with new subscriber growth still humming, telcos have not had to slash prices to attract users. But as the industry leader, Cingular's sluggish performance may mean rivals are chipping away at its business -- or that the sector is headed for some slack times. Wall Street will be watching next week for reports from Verizon Wireless, a joint venture between Verizon (VZ) and Vodafone (VOD), and Sprint Nextel (S).
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