SBC, not Verizon The Biggest Bell of Them All

[David Farber <dave () farber net>]

------ Forwarded Message
From: Jeff Schult <jss () tftb com>
Organization: ctlook.com
Reply-To: Jeff Schult <jss () tftb com>
Date: Thu, 28 Apr 2005 13:05:14 -0400
To: <dave () farber net>
Subject: Re: [IP] SBC, not Verizon The Biggest Bell of Them All

Dave,

As someone who has followed the Bells for years (and also worked for SBC), I
can tell Dan, if he didn't know already, that many people over time have
attempted to explain (or justify) the difference in valuations between
Verizon and SBC. To summarize their arguments:

1.) Verizon has been more profitable, as noted.
2.) Verizon has said it will invest a great deal more in next-generation
networks ($29 billion more in the next five years, I've read) ... and so
Wall Street gives them credit for being more likely to be in a better
competitive position a few years from now.
3.) Verizon is perceived as being more efficient generally. SBC is, in many
ways, still a company that is just cobbled together out of Southwest Bell,
PacBell, Ameritech, SNET, Nevada Bell, Prodigy, Cingular, etc. and has never
done what was necessary to achieve the kind of cost savings one would expect
they could have -- other than with layoffs and buyouts, which also cost them
a lot of experienced talent.

I could go on -- but, obviously, there are real reasons to account for the
valuations. The valuations reflect the aggregate opinion of the marketplace
for the stocks of the two companies, and the difference in the two has been
something of a curiousity that has generated speculation for years.

-jeff
www.tftb.com


----- Original Message -----
From: "David Farber" <dave () farber net>
To: "Ip" <ip () v2 listbox com>
Sent: Thursday, April 28, 2005 12:37 PM
Subject: [IP] SBC, not Verizon The Biggest Bell of Them All



------ Forwarded Message
From: Daniel Berninger <dan () danielberninger com>
Date: Thu, 28 Apr 2005 12:35:23 -0400
To: <dave () farber net>
Subject: SBC, not Verizon The Biggest Bell of Them All

Dave,

There appears to be an anomaly in the relative market valuations of SBC and
Verizon due to differences in how they report wireless results.

I am challenging anyone to account for the 25% premium enjoyed by Verizon
shares over SBC.

Everyone seems to think Verizon is the larger company, but SBC is larger by
revenues and customer counts for celluar, LD, DSL, and Data.  The two report
the same number of total access lines.  SBC has somewhat better overall
margins.

Verizon appears the larger company because it integrates 100% of Verizon
Wireless's numbers as a part of the parent company's revenues and expense.
SBC reports Cingular's results separate from the wireline results of SBC.

So much for efficient markets theory.

See below.

Best regards,

Dan

......................................
Daniel Berninger
VP, Senior Analyst
Tier1 Research
v: 202.250.3838
e: dan () tier1research com
w: www.tier1research.com

> > > > > > > > > > > > > >

http://www.gigaom.com/2005/04/28/sbc-not-verizon-the-biggest-bell-of-them-al
l/

SBC, not Verizon The Biggest Bell of Them All
If you would look at the shares of Verizon this morning, you would come to a
conclusion - VZ is the biggest phone company in the US. Well, that is just
not true. At the end of first quarter 2005, SBC is the largest baby bell
company. Yes, that¹s right - bigger than Verizon, which for some odd reason
gets more props on Wall Street than SBC. ³I am challenging anyone to justify
the 25% premium enjoyed by VZ shares relative to SBC,² says Dan Berninger,
senior analyst with Tier1 Research. Maybe because Verizon made more money
this quarter than SBC? ($1.8 billion versus $885 million for SBC?)

Still Dan¹s argument is quite valid. In an apple-to-apple comparison,
Verizon¹s 1Q-2005 revenue was $18.18 billion, while SBC came in at $18.34
billion. As an aside, the two companies have roughly the same number of
local access lines -Verizon 52.2 million and SBC 52 million. Verizon¹s
proportional share of wireless customers, is 25 million or 55% of 45.45
million, while SBC¹s 60 percent share of Cingular¹s 50.4 million brings the
company 30.2 million wireless customers. Verizon has 3.9 million DSL
customers, SBC has 5.6 million. Verizon has 18 million long distance
customers, while SBC has 22 million. High capacity data revenues: Verizon
$2.1 billion versus SBC $2.8 billion.

April 28, 2005 6:44 am



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