Verizon (NYSE: VZ) and AT&T Mobility (NYSE: T) remain not just far ahead of T-Mobile US (NYSE:TMUS) and Sprint (NYSE: S) in terms of subscriber counts, but also in profitability, both on a raw basis and on a per customer basis, according to industry analyst Chetan Sharma.
In his quarterly roundup of the state of the industry, Sharma notes that after the third quarter, the strategies for the different carriers were revealed in their financials. "Verizon and AT&T have optimized their business on margins" while T-Mobile and Sprint have focused more on net subscriber additions.
"In 2015 so far, Verizon and AT&T have earned roughly $17/subscription/month while T-Mobile and Sprint have collectively lost $0.39 on every subscription/month," Sharma said.
AT&T posted a record wireless EBITDA service margin of 49.4 percent in the third quarter, up from 43.1 percent a year ago and 48.5 percent in the second quarter. Verizon's was even higher. Verizon's wireless segment EBITDA margin on service revenues was 56.4 percent in the third quarter, compared with 49.5 percent in the year-ago period.
T-Mobile posted net income of $138 million or 15 cents per share in the third quarter, a swing back from a net loss of $94 million a year ago, or a loss of 12 cents per share. Sprint reported a net loss of $585 million, or 15 cents per share, compared to a net loss of $765 million, or 19 cents per share, in the year-ago quarter.
The dynamic is not likely to change anytime soon, as the window on any major industry M&A activity is closing, Sharma noted. "Given that the [600 MHz incentive] spectrum auction is coming up and the U.S. presidential cycle in 2016, the window of any major M&A in the service provider segment is almost closed and we might be looking at 2017 and beyond for any major transactions," he said. "This means, T-Mobile and Sprint who were hoping for some form of a transaction by now will have to keep on competing and outdueling rivals for the next few quarters."
Overall, Sharma said that "after a minor blip of positive growth in postpaid ARPU by T-Mobile and AT&T last quarter, all operators saw declines in postpaid ARPU in Q3 with Sprint showing the sharpest decline with 11% change YoY." Overall industry ARPU fell by 2.6 percent in the third quarter, according to Sharma. However the U.S. mobile data market grew by 3 percent from the second quarter and 14 percent year-over-year.
"The overall services revenue declined again by 2%," he said. "The device revenue increased by 26% which helped the overall revenue to grow by 3%."
The U.S. wireless market added 7.2 million connections in the third quarter, and AT&T, Verizon and T-Mobile all added 2 million or more total subscribers. Sprint also showed positive net-adds, though at a fraction of the top three carriers.
Verizon again led in postpaid net adds, though a bulk of the additions are coming from tablets and not more lucrative postpaid handset customers. Verizon had 1.3 million postpaid customer additions in the third quarter but 818,000 of those were tablets.
T-Mobile added 1.085 million branded postpaid customers in the quarter, the fifth quarter in a row where it notched more than 1 million postpaid net adds. That figure included 843,000 postpaid phone customer additions, by far the most in the industry (Verizon added 430,000 such customers in the quarter and Sprint added 237,000 postpaid phone customers in the period, while AT&T lost 545,000, which it said were mostly feature phone customers).
Sharma noted that AT&T added 1 million connected cars to its tally and now has 5.4 million connected cars on its network, "probably the highest of any mobile operator in the world."
- see this Chetan Sharma report
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