With the wireless industry’s nationwide players having posted third-quarter results, it appears that the market is quickly changing from a battle of the big 4 to a war between the big 2.
Last week, the industry’s No. 3 and No. 4 operators, Sprint Nextel Corp. and T-Mobile USA Inc., posted results that fell well below growth posted by their larger competitors and highlight an increasing gap between the haves and the have nots.
Sprint Nextel, as has become a recent trend, said it lost 1.3 million customers during the quarter, pushing its total customer base to 50.5 million subscribers, the lowest level since mid-2006. The drop came despite year-over-year improvements in customer churn that were not enough to counteract mass defections from the carrier, especially among high-revenue postpaid customers.
T-Mobile USA has similar challenges; the carrier added 293,000 postpaid customers during the quarter, its lowest postpaid growth since 2001. The industry’s No. 4 operator’s prepaid offerings attracted 377,000 net customers during the quarter, which helped push the carrier’s overall growth to modest levels.
But, in comparison to AT&T Mobility and Verizon Wireless – both of which added more than 2 million customers during the quarter – the results look grim.
While neither Sprint Nextel nor T-Mobile USA mentioned any specific destination for their defections or slower growth, analysts continue to point fingers at AT&T Mobility’s exclusive offering of Apple Inc.’s iPhone and Verizon Wireless’ continued perceived superior network quality as likely causes.
“AT&T indicated it saw 1 million customers switch to AT&T due to the iPhone, and it appears many of those customers may have come from T-Mobile,” noted Kate Price, analyst at Technology Business Research. Price made similar comments in a research note regarding Sprint Nextel’s quarterly results.
And with AT&T Mobility keeping the 3G iPhone on its shelves and its shelves only until 2010, it’s likely to keep welcoming (and stealing) customers.
Tough times to continue
Susan Welsh de Grimaldo, analyst with Strategy Analytics, said Sprint Nextel needs to staunch the loss of customers if it wants to continue as a respected challenger in the mobile space.
“With quarterly losses of over a million subs paired with flat-to-declining ARPU, Sprint Nextel still has to prove it can turn things around and stay in the race,” she said. “With AT&T Mobility showing strong subscriber and data revenue growth with the iPhone phenomena, and Verizon Wireless preparing to leapfrog its way to the top with the now-approved merger with Alltel, Sprint Nextel really has its work cut out for it.”
Analysts expect Sprint Nextel to continue losing customers through at least the first half of next year.
“Its performance just does not spell recovery – at least not yet,” Welsh de Grimaldo said.
Google to the rescue
Looking in the crystal ball for T-Mobile USA, Welsh de Grimaldo is a bit more optimistic, despite the carrier’s equally rough quarterly earnings. She said the carrier continues to be sidetracked by the rollout of its 3G network, but that those deployments will be key for the carrier to remain competitive with its larger rivals. “If it can really deliver on upgrading its subscriber base, that’s going to be a good play for them so they don’t have customers who leave and go to other operators for that 3G experience.”
T-Mobile USA also could start to see some momentum from the recent launch of its HTC Corp.-built G1 handset that runs Google Inc.’s Android operating system. The device garnered strong reaction following its launch last month with the carrier having to shut down pre-orders soon after announcing its launch date. In addition to countering AT&T Mobility’s iPhone exclusive, TBR’s Price said the G1 could help T-Mobile USA increase data revenues that have failed to garner traction.
“Though the company’s improvement in data monetization was not impressive [during the third quarter], the addition of higher-end devices, such as the G1, will likely inflate data ARPU in upcoming quarters,” Price said. “Just 17% of the company’s revenue originated from data, as opposed to 25% and 24% for Verizon and AT&T, respectively.”
Welsh de Grimaldo also noted that the increased competitive pressure on the laboring pair could start coming from below.
“They’re going to feel the pressure of the rollout of Leap Wireless and MetroPCS,” she said.
Leap Wireless International Inc. and MetroPCS Communications Inc. recently announced plans to expand their respective footprints through a reciprocal roaming agreement that will allow the carriers to offer much broader coverage to their customers. This could be especially troublesome as their target market is similar to the prepaid segment that has been one of the few bright spots for both Sprint Nextel and T-Mobile USA.
Overall, Welsh de Grimaldo said it’s a bit too early to say that T-Mobile USA is in big trouble, as Sprint Nextel may be. The carrier has learned a lot from its parent company and has picked a good customer segment to target, she said.
