Q1 results on deck: Prepaid role expected to increase

Financial results are set to begin trickling in this week with a number of heavy hitters in the mobile space scheduled to announce their latest financial results.
Amongst wireless carriers, the industry’s No. 1 and No. 2 players are on deck with AT&T Mobility (No. 2) set to announce first quarter results on Wednesday and arch-rival Verizon Wireless (No. 1) set to announce on Thursday.
If recent history is any indication, those two operators will account for nearly all of the wireless industry’s net customer additions for the quarter and an increasing number of those net additions will be to their respective no-contract offerings.
A recent report from Washington, D.C.-based New Millennium Research Council showed that prepaid net additions surpassed postpaid net additions during the fourth quarter of 2009 for the first time.
Jefferies & Company Inc. recently lowered its estimate for customer growth at Verizon Wireless for the quarter from 1.65 million net additions to 1.515 million net additions, citing slower than expected growth on the postpaid side. In total, Jefferies said it expects Verizon Wireless to add 525,000 postpaid customers; 40,000 direct prepaid customers; and 950,000 wholesale net additions, with most coming through its agreements with Tracfone Wireless Inc.
That growth would be a strong improvement compared with the 1.277 million customers the carrier added during the first quarter of 2009, but down more than 32% compared with the more than 2.2 million added during the traditionally busy fourth quarter period.
Verizon Wireless is sure to see continued growth in wholesale net additions going forward as Wal-Mart Stores Inc. recently unveiled a television commercial campaign for the Straight Talk service it offers through Tracfone.
Verizon Wireless also earlier this year updated its own prepaid pricing plans in an attempt to make them more attractive to a typically cost conscious base.
Jefferies expects Verizon Wireless’ churn to remain level at around the 1.4% to 1.5% level with average revenue per user dropping slightly to $49.35.
As for AT&T Mobility, Jefferies said it expects the industry’s No. 2 operator to add 1.525 million net customers during the quarter, which would be down more than 27% from the nearly 2.1 million the carrier added during the first quarter of 2009 and nearly 25% less than what it added during the fourth quarter of last year.
First quarter growth at AT&T Mobility is expected to include just over 1 million wholesale net additions; roughly 550,000 postpaid net additions; and the loss of around 50,000 prepaid direct adds that Jefferies said is due to a lack of focus on the segment by the carrier. AT&T Mobility updated its GoPhone prepaid service last October to include $60 per month for unlimited calling, which is still a $10 to $30 premium compared with competing unlimited calling plans.
One positive for AT&T continues to be the strong adoption of Apple Inc.’s iPhone, which the carrier continues to maintain domestic exclusivity of. The device remains a hot seller, is available only to more lucrative contract customers and requires a $30 per month data package that helps bolster the carrier’s bottom line. Apple is expected to announce fiscal results later today.
Estimates for quarterly results are not out yet for the industry’s No. 3 and No. 4 carriers Sprint Nextel Corp. and T-Mobile USA Inc., though analysts have hinted that they don’t expect the carriers to make inroads into their larger competitors.
Sprint Nextel said it lost 148,000 customers during the fourth quarter of 2009, with analysts expecting the hemorrhaging to continue for at least the near term. Those losses were lead by its postpaid operations that dropped more customers than the carrier’s prepaid operations could replenish. That is expected to continue, though Sprint Nextel has recently added more attractive CDMA devices to its Boost Mobile subsidiary that could prove compelling to customers.
T-Mobile USA is in a similar boat as the carrier has increasingly had to rely on prepaid customers to boost its customer growth, but with increasing competition it the space the boost has lessened. During the fourth quarter T-Mobile USA added 371,000 net customers to its network that was solely from its prepaid services as its postpaid offering lost 117,000 customers during the quarter. The carrier revamped its rate plans last October putting a greater emphasis on value into its prepaid offering. But, with more competition coming into the space over the past several months, that reliance could prove troubling.