As the wireless industry rounds third base on its way into the holiday home stretch, many will depend on momentum from the third quarter to carry them through.
The first round of third quarter earnings has begun to trickle in, with most of the national carriers to report within the next two weeks. No. 1 Cingular Wireless L.L.C. is expected to improve its performance, and No. 2 Verizon Wireless is likely to remain the industry leader, according to a Merrill Lynch research report.
The wireless industry is splitting, Merrill Lynch suggests, with Verizon Wireless and Cingular Wireless L.L.C. on one side of the divide and No. 3 Sprint Nextel Corp. and No. 4 T-Mobile USA Inc. on the other.
Churn rates are expected to tick upward at all of the national carriers except T-Mobile USA, which Merrill Lynch predicts will hold steady at an above-industry average of 2.9 percent. Merrill Lynch estimates that Sprint Nextel will see the largest jump in churn, increasing .2 percent to 2.3 percent total churn. The carrier also is seen as lagging in net customer additions, with Merrill Lynch pegging Sprint Nextel’s customer gains at just 200,000-far less than the nearly 1.2 million that the carrier added in the same period last year.
Cowen & Co. analyst Tom Watts wrote in a research note that Sprint Nextel appears to be set up for a rebound in the fourth quarter and in 2007, but that the steps the company is taking to improve its performance “are unlikely to help miserable adds in the third quarter.”
Cingular and Verizon Wireless are expected to gain 1.2 million and 1.7 million customers, respectively. That’s a bit less than Verizon Wireless’ 1.9 million customer additions in the third quarter of last year, but reflects a jump of about 38 percent for Cingular.
Overall, Merrill Lynch analyst David Janazzo noted that “our store checks do not indicate an overall secular slowdown or economic pressure” for the wireless industry, despite wireless penetration that is expected to reach nearly 80 percent by the end of the year.
T-Mobile USA executives have said that after a slow-down in growth during the second quarter-when the carrier changed its focus from one-year to two-year contracts-the company is back on track with growth. During the third quarter of last year, T-Mobile USA added slightly more than 1 million customers. Merrill Lynch estimated that the fourth-largest U.S. carrier will add about 750,000 net new customers in 2006’s third quarter.
Among regional carriers, Alltel Corp. has already said that its MyCircle rate plans have given it noticeable growth in postpaid customer numbers; it is set to release results Oct. 27. MyCircle allows customers on plans of at least $60 per month to choose 10 phone numbers for unlimited calling regardless of network. T-Mobile USA recently introduced a similar offering called MyFaves, which allows five numbers to be chosen; that product, however, was not available during the third quarter.
Leap Wireless International Inc. won’t release its full results until early November, but reported a 73-percent improvement in gross customer additions during the quarter. Leap said it gained 161,000 net new subscribers in the third quarter of 2006, compared to just 23,000 net new customers in last year’s third quarter. Leap also pared down its churn rate from 4.4 percent in 2005 to 4.3 percent for the third quarter of 2006.
