Competition among the big 4 carriers is fiercer than ever. Taking a look at their most recent quarterly results gives some insight into just how heated the race for subscribers and revenue continues to be.
In the most recent quarter ending midyear, Sprint officially lost the No. 3 position to T-Mobile US despite quarterly results exceeding expectations.
Sprint said it added 675,000 net connections to its network for the quarter ended June 30, which was a substantial turnaround from the 220,000 connections lost in the same period in 2014, although about half of what it did the previous quarter. Sprint said it ended the quarter just short of 57.7 million connections on its network, officially ceding the No. 3 position in the domestic mobile market to T-Mobile US, which ended the quarter with 2.1 million new connections and 58.9 million total connections on its network.
The quarter ended with Verizon Communications and AT&T continuing to rank as the two largest U.S. wireless carriers. AT&T reported second-quarter earnings that topped Wall Street estimates while revenue fell just short of the consensus view.
After a very slow first quarter, all big 4 carriers ramped up capital intensity in the second quarter. Verizon had the biggest spike in capital expenditures in the quarter, from $2.4 billion in the first quarter to $3.1 billion in the second quarter, as it continues to densify its network with a combination of small cells and distributed antenna systems, as noted by Wells Fargo analysts in an Aug. 19 report.
After a relatively quiet first quarter, postpaid net adds across the big 4 grew 22.2% sequentially. This growth was largely driven by improvements in customer retention relative to gross add volume, noted Wells Fargo analysts in their report. Average big four churn was 1.20% – the lowest it has ever been across these carriers – while gross additions grew only 1.1% sequentially and declined -1% year-on-year.
According to the Wells Fargo analysts, T-Mobile US led the industry in postpaid handset net adds for the fourth consecutive quarter with 760,000, buoyed by promotions such as its four lines for $100 of 2.5GB/line. Verizon also had a strong quarter adding phone customers, reporting 322,000 handset net adds and 588,000 smartphone additions. Sprint reported postpaid handset losses of 12,000 (but actually saw positive growth in this metric in both May and June), a significant improvement from its 201,000 in losses the previous quarter and 716,000 losses in the year-ago period.
T-Mobile US’ Simple Choice plan is clearly a key part of the wireless carrier’s strategy. The rising popularity of the plan has positively affected subscriber growth. In the second quarter of 2015, plan adoption grew to 93 % of the company’s postpaid subscriber base, according to Market Realist. Financially speaking, T-Mobile US’ revenue beat Wall Street analyst expectations again in the second quarter. The carrier’s revenue grew robustly by 13.8% year-over-year to $8.2 billion, beating the consensus estimate by 2.7%.
Meanwhile, Verizon Wireless saw a slowdown in second-quarter customer growth, but did surpass some expectations. The carrier said it added just over 1 million direct connections during the second quarter, led by robust tablet sales and modest growth in more financially lucrative smartphone connections. However, continued struggles with direct prepaid customers, which counted 126,000 defections during the quarter, resulted in a 29.4% year-over-year drop in overall net connection growth during the quarter. Verizon Wireless said it ended the first half of the year with 109.5 million direct connections on its network, posting a 5.3% increase in operating revenue for the second quarter, growing from $21.5 billion last year to $22.6 billion this year.
Even with the continued promotional activity, the earnings before interest, taxes, depreciation and amortization margin was strong in the second quarter, expanding 310 basis points sequentially and 330 basis points year over year on average across the four carriers. Sprint, in particular, was able to expand its margins by 570 basis points sequentially and 560 basis points year over year. This margin expansion was due to lower gross add growth across the industry, a continued shift away from device subsidies and some incremental benefit from leasing programs initiated at T-Mobile US and Sprint, noted the Wells Fargo analysts.
In terms of stocks, Wells Fargo has an Outperform rating on AT&T, Verizon and Sprint and a Market Perform rating on T-Mobile US.
