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In Q3, Sprint drags while T-Mobile challenges Verizon, AT&T

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Mike Dano

After the industry's impressive M&A spree during the second quarter of this year, the third quarter showed the wireless industry getting back to business: growth.

During the second quarter, SoftBank finalized its investment in Sprint (NYSE:S), Sprint closed on its acquisition of Clearwire, T-Mobile US (NYSE:TMUS) took over the operations of MetroPCS and AT&T Mobility (NYSE:T) signaled its interest in Cricket carrier Leap Wireless. However, net adds during the second quarter slowed to a paltry 139,000 connections, according to longtime industry analyst Chetan Sharma.

But during the third quarter things picked back up with the addition of 2.4 million new connections, according to Sharma. That growth was driven largely by continued momentum from Verizon Wireless (NYSE:VZ) and AT&T, but more importantly by a rejuvenated T-Mobile. Here's a quick breakdown on the nation's top wireless carriers and their general strategic position at the close of the third quarter:

For a detailed look at how U.S. wireless carriers performed during the second quarter, check out Strategy Analytics' grading of the top operators in the second quarter.

Verizon Wireless, still the nation's largest wireless carrier, reported customer additions slightly below analysts' estimates, which some attributed to T-Mobile's impressive customer gains during the quarter. However, Verizon's strong financials during the period helped offset investor disappointment; Credit Suisse analysts raised their 2013 and 2014 revenue estimates for Verizon by 0.5 percent and 2.3 percent, respectively. Others were more cautious: "We believe competitive intensity will escalate over the next 12 months as TMUS and Sprint fight to grow and AT&T is forced to respond," New Street Research analyst Jonathan Chaplin wrote of Verizon's results. "Competition could dampen ARPU growth and threaten margins." Eric Costa at Technology Business Research pointed out that Verizon plans to increase spending on its network as a response to the competitive pressures, to around $10 billion for 2013.

For its part, AT&T posted solid if not spectacular results. However, AT&T too will face increasing competition in the months ahead: "Much of AT&T's net adds (in the third quarter) have come from tablet penetration amongst the user base; however, this may be challenged with TMUS going after the tablet market more aggressively," noted New Street Research's Chaplin.

But the real story of the third quarter was the continuation of T-Mobile's impressive turnaround. The carrier's third-quarter results forced a number of analysts firms to increase their net add expectations for T-Mobile in the fourth quarter and beyond. "TMUS continues to beat expectations and we expect another strong quarter ahead in 4Q13," Chaplin wrote, raising New Street's fourth quarter expectations for postpaid net adds at T-Mobile to 848,000 from 460,000. And T-Mobile is positioning itself to continue on its trajectory: The company recently announced improved international roaming and tablet data plans that are less expensive than those from other Tier 1 carriers. T-Mobile's results "will continue to improve in 2014 as the operator's latest plan changes will attract subscribers from other Tier 1 carriers," predicted TBR's Costa.

And finally, Sprint phoned in another tepid quarterly report as the carrier continues to recover from the shuttering of its Nextel iDEN network. "Postpaid losses were worse than we expected and well worse than consensus. We believe Sprint will continue to face sub losses over the next 3 quarters at least. We are inclined to stay on the sidelines until we see real evidence that the company can grow subs," summed New Street's Chaplin. However, Sprint offered a ray of hope after the release of its third quarter earnings report with the promise of Sprint Spark, a technology the company said will combine its 800 MHz, 1900 MHz and 2.5 GHz spectrum bands, along with TD-LTE and carrier aggregation, into a service that can provide download speeds of up to 60 Mbps.

For a detailed look at how U.S. wireless carriers performed during the third quarter, check out Strategy Analytics' grading of the top operators in the third quarter.