How Verizon, AT&T, Sprint, T-Mobile and TracFone stacked up in Q3

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Jan Dawson

The third-quarter earnings season is coming to a close, so now it's time to see how the nation's top wireless carriers stacked up against each other in terms of key metrics.

Jackdaw Research analyst Jan Dawson has assembled these slides that provide an in-depth look at how Verizon Wireless (NYSE: VZ), AT&T Mobility (NYSE: T), Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS) performed in the third quarter. Dawson also covers América Móvil's U.S. MVNO, TracFone Wireless, which is the largest operator outside the big four carriers, and has for some time been the largest prepaid operator in the U.S. as well. TracFone's service piggybacks over the networks of Verizon, AT&T and other top carriers.

Dawson's research covers relatively standard metrics including revenue growth and net adds, but also includes deep dives into prepaid vs. postpaid performance, subscriber acquisitions vs. losses, and net additions by device type.

Thanks to a partnership between Dawson and FierceWireless, we're publishing these third-quarter slides exclusively for a short time. These slides are part of a larger report Dawson has assembled on the third quarter. Click here to view Dawson's full slide deck.

Check out Dawson's third quarter slides and commentary below, and let us know what you think in the comments!

Jan Dawson's commentary: T-Mobile continues to lead the big four carriers in wireless revenue growth, although TracFone's growth recently makes it the leader overall among the big five operators. T-Mobile's growth is due to its rapid acquisition of new customers along with its relatively low churn compared with Sprint, on a smaller base than Verizon and AT&T. T-Mobile is the only one of the four major carriers which added subscribers in each of the four major categories in the quarter: postpaid, prepaid, wholesale and connected devices. However, Verizon and AT&T have been able to grow at a decent clip as well, whereas Sprint continues to languish with declining revenues year-over-year. AT&T's revenue growth has been hit temporarily by its transition towards installment billing plans and its aggressive migration of customers to Next-style plans. In the coming quarters, I expect AT&T's revenue growth to begin to recover as this one-time change works its way through the base and more of its customers start paying equipment installment fees.

Jan Dawson's commentary: This chart shows the downside of T-Mobile's rapid growth, which has come at the expense of its profitability. Though it is the fastest-growing among the four major carriers, it now regularly vies with Sprint for the position of lowest-margin among the big four carriers. T-Mobile's growth is expensive because it relies heavily on the payment of Early Termination Fees and other promotional items, which makes me question the sustainability of its current growth strategy. The challenge for Sprint is how to turn its growth around without resorting to the same short-term tactics at the expense of its profitability. As you can see, its margins have actually improved slightly lately, but it is forecasting worse results in the next quarter due to its aggressive growth plans. Meanwhile, AT&T and Verizon continue to tread a careful path of more modest growth at very good margins, thanks to their very low churn and strong gross additions.

This article was updated Nov. 6 to correct details on T-Mobile's EBITDA margin figures. The original chart was showing only data through Q2 2014 rather than Q3 2014, and as such there was an error in calculating EBITDA margins for Q2 2014. The EBITDA and operating margin charts in the deck have now been corrected and show pro forma results supplied by T-Mobile.

Jan Dawson's commentary: An interesting trend that's started to emerge in recent quarters is the growth of categories other than phones as a driver of postpaid net adds for the industry. Whereas phones were the biggest device category in net adds a year ago, today they are in third place behind both tablets and connected devices. Both AT&T and Sprint saw strong connected devices adds in the quarter, driven by connected car deployments in particular. But tablets continue to be a major source of overall postpaid adds, with Verizon by far the leader, adding around a million tablets each quarter and forecasting plenty more growth to come. Meanwhile, the rapid growth of tablets in the postpaid base has allowed postpaid growth to far eclipse prepaid growth, which has slowed significantly in the past year or two. The trends that briefly drove high prepaid growth appear to have waned as postpaid plans take on some of the flexibility that was once exclusive to prepaid, and fewer than a million new customers joined the prepaid ranks this quarter, following a decline last quarter, among the big five operators. Postpaid accounted for 69% of the non-wholesale subscribers among the big five operators at the end of Q3 2014, with prepaid at 22% and connected devices at 9%.

Jan Dawson's commentary: ARPU continues to be an increasingly complex metric for the U.S. wireless industry, as installment billing takes hold as a major trend, and several carriers see traditional service ARPU falling even as installment billings rise. Both T-Mobile and AT&T have begun reporting new metrics which aim to capture this transition, while Verizon continues to stand alone in reporting average revenue per account rather than per user. Both T-Mobile and AT&T's service ARPU has fallen since the rise of installment billing, but both have also seen growing equipment revenues, which led to modest growth in total ARPU at AT&T this quarter following a dip last quarter. Meanwhile, Sprint continues to see steadily falling ARPU over time while Verizon's's slightly different metric remains relatively stable. Verizon, of course, is the one carrier among the big four which has resisted the shift to installment billing, though it does offer it to subscribers who want to take advantage of it. With arguably the most conservative base of the big four carriers, Verizon may be the one carrier which can afford to do so and not see too many negative results.

Jan Dawson's commentary: At the time of writing, I hadn't yet been able to pin down an exact number for Sprint's smartphone sales in the quarter, but all of the carriers saw a bump in sales in the quarter, thanks in part to the launch of the iPhone 6 and 6 Plus right at the end of September. It's amazing that a single device launch less than two weeks before the end of the quarter can have such an impact, but the iPhone continues to be the most influential device in the market, and Q4 promises to be an even bigger quarter. Sprint forecast on its earnings call that its rate of upgrades might rise from 8% in Q3 to 12% in Q4 as a result of seasonality and a big iPhone quarter, and it's likely that all four major carriers will see significant upgrades. All four carriers saw over 90% smartphone purchases out of their gross adds in the quarter, and the rate of penetration of smartphones in the base continues to increase each quarter, though Verizon is the laggard in this regard, despite the fact that it regularly sells more smartphones each quarter than any of the other carriers. 

Jan Dawson's full slide deck:


How Verizon, AT&T, Sprint, T-Mobile and TracFone stacked up in Q3