With their purchases of DirecTV, AOL and Yahoo, the nation's two biggest wireless carriers -- AT&T and Verizon -- have pivoted beyond their traditional business in the search for alternative revenues.
Those purchases -- the latest being Verizon's announcement Monday to snap up Yahoo for $4.8 billion -- came about because the carriers realized more than two years ago that traditional wireless services are becoming saturated in the U.S. As a result, wireless services revenues have shrunk or remained flat in recent quarters.
The latest second quarter 2016 financial results show that AT&T Mobility -- the division that oversees wireless service revenues -- saw a 2.1% decline to $17.9 billion from the same quarter in 2015.
AT&T's total revenues were up 22.7%, reaching $40.5 billion, primarily because of increased revenues from DirecTV, which it purchased in 2014.
For Verizon, comparable wireless services revenue declined by 4% to $21.7 billion in the second quarter. Verizon's total revenues were down 5.3% to $30.5 billion.
There was no indication in the report of a positive impact from Verizon's AOL purchase in 2015, although Verizon CEO Lowell McAdam talked about the "complementary" value that will come from integrating Yahoo with AOL.
In addition to buying other companies, both carriers are pursuing revenue from Internet of Things technology. Verizon said it got $205 million in that segment, a jump of 25%. AT&T didn't report the segment separately in the latest report.
The focus on new forms of revenue comes because both companies saw a ceiling on wireless services.
"AT&T and Verizon both figured out a while ago that when you each have 30% or more of the market in a very competitive wireless services market, that there's not that much room for growth," Roger Entner, an analyst at Recon Analytics, said in an interview. "Rather than doubling down on the same strategy, you have to come up with something better."
Buying both Yahoo and AOL in 2015 helps make Verizon into a full-service wireless internet provider, while AT&T's purchase of DirecTV in 2014 helps the company "become your connected service provider for every screen," as Entner described it.
One consequence of these market shifts? T-Mobile "is now the most traditional wireless carrier in the market," Entner added. Joking about T-Mobile's healthy strides with its UnCarrier price-cutting and other moves, he added: "The UnCarrier is the most carrier of them all."
Chris Antlitz, an analyst at Technology Business Research, offered a different take on the newfound revenue strategies.
"Both companies generate the highest margins of profit on their wireless business and both want to stay positioned as the premium providers," Anglitz said. "They are making sure they hold onto the best customers with the highest credit scores. They are taking the cash flow from the traditional wireless business and redeploying it into growth areas -- mainly digital ads and Internet of things."
The most profitable of these new businesses is widely expected to involve new advertising technology platforms. Customer data from AOL and Yahoo, combined with Verizon's own internal customer data, means the carrier will be able to charge a premium for highly targeted internet advertising and will have a global base of customers not limited to the U.S., Anglitz said.
AT&T is also interested in digital advertising, "but they are more covert about it than Verizon and their work is more homegrown," Antlitz said.
Protecting the wireless service market
Although AT&T and Verizon have pursued new markets, traditional wireless phone service will continue to deliver up to 90% of each company's business, Antlitz predicted. As a result, customers are likely to continue to hear both companies brag about having the best network coverage and overall quality of service.
To that point, Verizon this week announced it had spent $5 billion in the first six months of 2016 on network enhancements. That's a total of $116 billion since 2000, the company said.
Verizon also noted it has faster wireless speeds in 37 states, according to the latest RootMetrics national performance study.
AT&T meanwhile today announced it had snagged the top ranking in the latest Wireless Customer Care rankings from J.D. Power. The ranking is based on a survey of 7,556 U.S. wireless customers in the first half of 2016. The top spot was previously held by T-Mobile.
AT&T and Verizon are the nation's two largest carriers by a large margin over T-Mobile and Sprint. Based on pre-paid and post-paid wireless customers, Verizon has 113 million, AT&T has 89.9 million, T-Mobile has 52.5 million and Sprint has 45.3 million.