Marek’s Take: Wireless industry might just be pandemic-proof

person on smartphone at home
The fundamentals of the wireless carrier business remain strong as people need to stay connected. (Getty Images)
Marek's take

Every day we hear in the news about industries (retail, restaurant, fitness) that may never recover to their pre-pandemic status. But the wireless industry doesn’t appear to be one of them. As the second quarter 2020 earnings season ramps up, it’s becoming increasingly clear that for the most part the wireless industry is resilient to the pandemic.     

That doesn’t mean that some wireless companies aren’t suffering from layoffs and financial losses. But it does mean that the fundamentals of the wireless carrier business remain strong.

Both AT&T and Verizon reported their earnings last week. Verizon reported wireless service revenue of $15.9 billion, which was a 1.7% decrease year-over-year. AT&T meanwhile reported wireless service revenue of $13.7 billion, which was a down 1.1%. Both Verizon and AT&T attributed those declines to the fact that many of their retail stores were closed because of stay-at-home orders and as a precaution to protect their employees. The other big reason for the losses was the decline in international roaming. Both operators make money on the fees U.S. customers pay when they travel overseas and roam on international operators’ networks.

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But there was some good news in the quarter. Verizon managed to increase its postpaid net adds by 72,000 in the quarter. In prepaid, Verizon added just 12,000 customers.

AT&T also added 135,000 prepaid customers. However, the company reported a loss of 151,000 postpaid phone subscribers. According to AT&T, that figure includes 338,000 customers who are still connected but can’t pay their bills.

AT&T is trying not to disconnect those customers as part of the FCC’s Keep Americans Connected program. That program waives late fees from past-due accounts and overage charges and keeps service active for customers that are unable to pay due to the pandemic. The voluntary program ended July 1, but both Verizon and AT&T have said they are working with those customers to keep them connected. Verizon’s CFO Matt Ellis said on the company’s second quarter call with investors on Friday that the company is working with customers who are impacted. “We have a repayment program that extends their payments.”

AT&T executives made similar comments during the company’s second quarter call with investors on Thursday. “We are working with them and trying to retain these customers,” said CFO John Stephens. “We certainly haven’t given up on them. And they haven’t given up on us.”

Wireless leadership

As I noted in a column that I wrote back in March at the beginning of the COVID-19 pandemic, in times of crisis, leadership is critical and both consumers and enterprises will remember the companies that treated them fairly long after the crisis has abated.

I still believe that is true and that’s why I’m heartened to hear that both AT&T and Verizon executives noted on their second quarter 2020 earnings calls that they are working to retain their customers that currently can’t pay their wireless bills.  

Verizon provided a bit more guidance about what they're doing. The company said that about 80% of the 1.5 million consumer and small business customers that are part of the Keep America Connected Program have made some payments in an attempt to keep current on their wireless bills and about one-third of those are current in their payments. “I am encouraged by what we have seen,” Ellis said. “My expectation is that the vast majority will still be our customers a year from now.”

No doubt the small business segment is also an area of particular concern to operators. Both Verizon and AT&T said that they are seeing some pressure in that segment and are watching it closely.

However, large enterprises seem to be a different story. Verizon CEO Hans Vestberg said that large companies are feeling the pressure to digitize faster and are therefore interested in products such as Verizon’s video conferencing platform, BlueJeans, which it acquired April 16 for $400 million. Another hot item for enterprises is software-defined wide area networking (SD-WAN).

Is prepaid the answer?

Perhaps prepaid wireless is the answer to consumers who are struggling to pay their bills due to job losses from the pandemic. AT&T’s 135,000 prepaid net adds in the second quarter seems to hint that consumers might be switching to prepaid accounts because they tend to cost less than postpaid plans and are easier to switch on and off.

AT&T’s additional 135,000 prepaid net adds in the second quarter is a big change from the first quarter when the company reported a loss of 43,000 prepaid customers and also from the fourth quarter of 2019 when AT&T reported a loss of 20,000 prepaid customers.

The company is clearly trying to appeal to the more cost-conscious users. It introduced a new prepaid promotion earlier this year for $50 per month that will give consumers unlimited data (up to 22 GB per month). The postpaid equivalent of that plan is $75 per month.

5G keeps growing

Another positive for the wireless industry is that the U.S. mobile operators are forging ahead with their 5G buildouts despite the pandemic. This means they are spending money on 5G equipment and cell sites, which in turn is fueling more wireless companies in the ecosystem. Verizon said that it spent $9.9 billion in the quarter and is still on track to spend between $17.5 billion and $18.5 billion in the year. “We are deploying more fiber and cell sites for our 5G rollout,” said Vestberg.

AT&T said it spent $4.5 billion in capex in the quarter and a portion of that went toward acquiring 5G spectrum. In April, AT&T won 379 MHz of the 39 GHz millimeter wave spectrum and spent $1.2 billion in auction 103 to get that spectrum.

While other countries are seeing their 5G deployments delayed or scaled back, the U.S. operators are staying on the same pre-pandemic schedule. And that, in turn, is making the U.S. wireless industry more resilient.

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