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Top 50 Communications Companies
Strong positions in wireless and network bandwidth boost AT&T, Verizon and Cisco to the top of CIOZone's ranking
Also See:
CIOZone 100: The Fastest Growing Tech Vendors
Top 50 Technology R&D Spenders
50 Highest-Paid Tech Execs
By Robert Hertzberg
The mammoth U.S. communications industry is a good place to be, especially for companies that are leaders in wireless or that have positioned themselves to profit from enterprises' exploding demand for bandwidth.
The 50 biggest U.S. publicly traded communications companies grew 13% in the 12-month period ended March 31, 2008, surging past half a trillion dollars in revenue, according to an analysis by CIOZone. Profit at the biggest companies rose 19%, but only if the results of Sprint Nextel are excluded. Hurt by customer defections in the wake of its 2005 merger, Sprint Nextel took a huge write-off and posted a $29.6 billion loss.
Indeed, in an era of rapid technological change, the communications industry has become a place of bet-the-company investments, either in the form of huge network expansions or acquisitions. The most successful of these investments have enabled the two biggest companies, No. 1 AT&T and No. 2 Verizon, to offer enterprises faster, more flexible networks and consumers new services.
"The amount of data that flows over the networks is increasing, on average, by 30% a year," says Eric Paulak, a managing vice president at Gartner. "As long as the network traffic keeps increasing and we put more things on it, the growth rate will not decline and in fact will probably accelerate."
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"The biggest bandwidth trend of all," he adds, "is we want more."
Many of AT&T's enterprise customers are migrating off of older voice and data networks in favor of technologies that can handle more services. AT&T is selling those customers networks based on MPLS (multi -protocol label switching), an Internet Protocol-based technology that can handle things like e-mail, file-sharing and video conferencing. AT&T's data revenues increased 31% in 2007, helped by an influx of customers from the company's acquisition of BellSouth. (That acquisition propelled AT&T past Verizon, the largest U.S. communications company in 2006.)
Verizon's biggest bandwidth push has been with FiOS, a fiber-to-the-home network offering voice, video and Internet, that is starting to gain traction among consumers. Verizon now has more than 1 million FiOS customers, most of them residential.
Verizon and AT&T are both also benefiting from wireless growth. Verizon added 7 million new customers in 2007, and now has 67.2 million subscribers. AT&T has even more subscribers, 71.4 million, including many whose cell phone bills are covered by their employers. "Anybody who has a mobility play is at an advantage because more and more transactions are happening in the mobile environment," says Josh Holbrook, director of enterprise research at the Yankee Group.
AT&T wireless has an edge among business customers over Verizon because its service is based on GSM (the Global System for Mobile communications), the wireless standard in most countries outside the U.S. "For companies with employees that travel internationally, that becomes a very important thing," says Lisa Pierce, a vice president at Forrester Research.
The bandwidth boom also has helped Cisco (No. 5 on our list) recover some of the luster it had at the height of the dot-com era, when it was the biggest company in the world by stock-market valuation.
Cisco's core router business is in good shape, helped by enterprises' upgrade cycles and the need for new routers in MPLS networks. And in its newly targeted area of unified communications-which it got into largely through acquisitions-Cisco is on a tear. Simply put, unified communications is the combination of voice, video, e-mail, instant messaging, and conferencing.
WebEx, the Web-based conferencing system that Cisco bought last year, has helped unified communications become one of Cisco's fastest growing businesses. Cisco TelePresence, the company's video conferencing technology, now has more than 100 corporate customers. Cisco is planning to roll out a home version of TelePresence in the next year. "Cisco's concept of what its market is, is expanding," says Forrester's Pierce.
Indeed, most successful communications companies have gotten that way by serving both businesses and consumers. That is true of Nokia, the global leader in handsets (No. 3 on our list, annual revenue of $74.6 billion), and Research In Motion, the company that popularized wireless e-mail (No. 13, revenue of $6 billion). But the struggles of No. 6 Motorola and No. 31 Palm, rivals and onetime superstars in their own right, show how punishing the industry can be to those who lose momentum. Both Motorola and Palm suffered revenue declines and lost money in 2007.
In terms of the magnitude of the challenge, the biggest question over the next year is undoubtedly Sprint Nextel (No. 4 on our list), whose customer base has become prime poaching ground for other wireless carriers. Sprint Nextel's postpaid churn rate, the rate at which the biggest part of its customer base disconnected service, was about 2.3% in 2007. By contrast, AT&T's churn rate was 1.3% and Verizon's was under 1%.
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