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Entner: Tablet promotion pushes Sprint into contract growth

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Roger Entner Recon Analytics

Roger Entner

·        Q4 2013 saw robust growth across the industry with subscriptions climbing by 4.688 million thanks to gains from all the providers other than Leap and U.S. Cellular.

·        Sprint offered the biggest surprise with 58,000 contract additions. By taking the AT&T playbook to the next level offering an aggressive tablet promotion, the company turned another contract loss into a surprising win. Nevertheless, the carrier remains under pressure and needs to finish its network upgrade in order to level the competitive playing field. Sprint should be well positioned with its Spark network, which promises to provide the fastest speeds in the United States.

·        T-Mobile continues to improve its customer acquisition and retention metrics through clever positioning and aggressive prices. While the main target of its antics has been AT&T, every carrier is feeling the impact. The big question for T-Mobile is no longer its ability to add to its customer base, but whether it can sustain the high acquisition costs of its new subscribers and their decreased profitability.

·        AT&T is responding to the competitive pressure from T-Mobile with a two-track strategy that reduces the price difference between AT&T and T-Mobile, while also widening the gap in its favor vis-à-vis Verizon. Its Mobile Share Value plan, rolled out in December, trimmed prices for some customers, especially those who bring their own phone. The company is responding to customer demand by more clearly distinguishing the cost of service from the cost of the device and how the differential affects customers in choosing a contract, a handset subset, and/or a device financing plan.

·        Verizon remains focused on network strength as its key differentiator. It remains the leader in LTE network coverage, but that advantage will ultimately fade as competitors complete their own build-outs. But the company hopes to retain leadership position by improving performance and has targeted 50 cities for boosts by bringing AWS spectrum online in the first half of this year. During the 4th quarter, it retained its industry lead in subscribers with 1.653 million in net adds.

·        Overall, we have seen in Q4 2013 a continuing momentum towards greater affordability in wireless, for services and devices. The amount of data provided and/or prices have declined, the ways customers have been able to buy devices and receive services has been increased.

 

Contract

No-contract

Wholesale and Connected Devices

Total

AT&T  

566,000 +203,000
363,000

(32,000) -224,000
192,000

275,000 -159,000
434,000

809,000 -180,000
989,000

Sprint

58,000 +418,000
(360,000)

322,000 +238,000
84,000

302,000 +121,000
181,000

682,000 +777,000
(95,000)

T-Mobile

869,000 +221,000
648,000

112,000 +88,000
24,000

664,000 +313,000
351,000

1,645,000 +622,000
1,023,000              

Verizon Wireless

1,573,000 +646,000
927,000

80,000 -54,000
134,000

 

1,653,000 +592,000
1,061,000

US Cellular

(71,000) -11,000
(60,000)

(26,000) -15,000
(11,000)

(4,000) +17,000
(21,000)

(101,000) -9,000
(92,000)

Tracfone *
(MVNO)

 

616,000 +611,000
5,000

 

616,000 +611,000
5,000

Total

2,995,000 +1,477,000
1,518,000

456,000 +33,000
423,000

1,237,000 +292,000
945,000

4,688,000 +1,802,000
2,886,000

Data is current quarter net adds, change of net adds, previous quarter net adds
* Off due to rounding.
** Not counted in totals to avoid double counting. Tracfone is additive to no-contract and subtracted from Wholesale totals.
*** Verizon has stopped releasing wholesale and connected device connections, which makes it impossible to calculate its total connection number. Therefore only retain connections are provided.

AT&T solid in fourth quarter, adding 809,000 subscribers despite downturn in prepaid. Most of AT&T's growth came from 440,000 net adds in branded tablets of its overall 566,000 contract net adds. The growth in tablets was slightly offset by a decline of 104,000 session-based tablet connections that contributed to a net loss of 32,000 prepaid connections. The company also reported a 123,000 loss of subscriber among resellers primarily because of a decrease in low-revenue 2G accounts. Nevertheless, churn stayed low at 1.11 percent and APRU increased again compared to last year as consumers are purchasing more products and services. Total postpaid ARPU, including lower-ARPU tablets, gained 2.1 percent versus 4Q 2013 which experienced a 3.9 percent gain for phone-only ARPU. The company is looking to its acquisition of Leap Wireless, which closed in early March, for stronger performance in the prepaid value segment.

Sprint surprised with subscriber gain in fourth quarter. Sprint had a surprising contract subscriber gain of 58,000 largely based on a connected tablet offer. Overall it was Sprint's strongest quarterly performance in some time, expanding its total number of subscribers by 477,000 thanks to strong growth in prepaid and connected devices. Indeed, the subscriber gains would have been even higher but for losing 205,000 subscribers due to divestitures. Total net additions to the Sprint platform actually came in at 682,000 before deducting the acquisition related drops. The company began deploying its high-speed Sprint Spark network, which it hopes will lay the ground for longer-term and long lasting performance gains. Still, a deeper look reminds us that Sprint continues to face significant challenges. Despite a year-over-year gain in net revenue, the company recorded a net operating loss of $576 million during the fourth quarter. The company still continues to run well behind the other three national providers in LTE coverage. And, its gain in net additions was largely traceable to a 466,000 increase in tablets. The company actually lost phone lines to T-Mobile.

T-Mobile added another 1.6 million subscribers with strength in all segments. T-Mobile remained the little magenta engine that could, reeling in new customers at impressive rates in postpaid, prepaid, and devices. Overall, the company reported net additions totaling 1.645 million, including an 869,000 gain in postpaid subscriptions. Both numbers were up from the third quarter, which also showed impressive gains. T-Mobile said it gained 664,000 in wholesale and devices and 112,000 in prepaid. It also reported strong improvement in postpaid churn from a year ago with a 1.7 percent rate in the final three months of 2014. That compares to 2.5 percent in from October-December 2012. On the downside, the company said postpaid ARPU fell 2.9 percent during the quarter as customers embraced cheaper plans. T-Mobile is aiming to maintain the momentum in subscriber growth with help from a new cash offer to customers who switch from other carriers. It faces potentially countervailing headwinds, however, from a slew of new offerings and price reductions from the other three national carriers.

Verizon remained on top with powerful growth in postpaid. Powered by the breadth of its LTE network, Verizon continued to expand its subscriber pace at an industry-leading pace in the final quarter of 2013. The company reported net additions of 1.653 million (compared to 1.061 million in the third quarter). As Verizon Wireless continues to dominate the high-value contract segment, the bulk of its growth came from its 1.573 million contract customer additions. That compares to a strong, but more modest 927,000 gain the third quarter. While the company has since reduced prices after largely holding itself apart from the competitive one-upmanship of its rivals, its core strategy remains the network. Verizon is in the processing of beefing up that network with AWS spectrum, which it launched in Q1 2014 and provided faster speeds to its customers. The company reported continued growth in ARPA (Annual Revenue Per Account), which was up nearly 1.0 percent from the third quarter and 7.1 percent year-over-year. Postpaid churn held steady at an industry-best 0.96 percent, compared to 0.97 in the third quarter of 2013 and 0.95 percent in the final quarter of last year.

Leap, R.I.P. Leap's struggle continued during its final quarter of life as an independent company with a decline of roughly 92,000 in total subscribers. According to a 10-K filing with the SEC, Leap suffered a subscribership loss of 745,297 for 2013 as a whole. It also lost dollars, reporting a net loss of $177 million between October and December of last year.

U.S. Cellular finding it harder and harder to compete. Despite good devices and a high-quality network that provides LTE to about 90 percent of its service area, U.S. Cellular continued to bleed customers in the fourth quarter. The company reported a net loss of 101,000 from October - December after losing 92,000 subscribers in the previous quarter. ARPU was down and churn was up, which the company said was partly due to billing system issues. Despite the negative trend, U.S. Cellular is promising further expansion of its LTE network.

Tracfone bounced back, reported strong customer and ARPU gains. Tracfone added 616,000 customers in the fourth quarter after gaining just 5,000 in the quarter before as it cleaned up books after recent acquisitions. It also reported a strong 9.3 percent gain in year-over-year ARPU with the help of increased revenues from data.

Roger Entner is the Founder and Analyst at Recon Analytics. He received an Honorary Doctor of Science from Heriot-Watt University. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications. Follow Roger on Twitter @rogerentner.

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