AT&T Mobility (NYSE: T) will wind up adding far fewer postpaid customers and yet far more prepaid subscribers in the third quarter than analysts at Wells Fargo initially thought.
In a research note revising their estimates ahead of AT&T's third-quarter earnings announcement on Oct. 22, Wells Fargo analysts Jennifer Fritzsche, Eric Luebchow and Caleb Stein said they now think AT&T will add 275,000 net postpaid customers in the quarter, down from 500,000 before. In the year-ago period AT&T notched 785,000 postpaid net subscriber additions.
"This is a function of both more muted gross adds and slightly higher churn," they said, adding that they think AT&T's postpaid churn will be 1.1 percent. AT&T's postpaid churn was 1.01 percent in the second quarter and 0.99 percent in the third quarter of 2014.
The postpaid market likely saw intense competition in the waning weeks of the third quarter in conjunction with Apple's (NASDAQ: AAPL) release of its new iPhone 6s and 6s Plus. Sprint (NYSE: S) last month made a move to best rival T-Mobile US (NYSE:TMUS) with its own trade-in program for Apple's newest iPhones and is offering a 16 GB iPhone 6s for $1 per month in leasing payments and a 16 GB iPhone 6s Plus for $5 per month with the trade-in of an iPhone 6 or 6 Plus. The Sprint offer, which will be available for a limited time, came just after T-Mobile said it would offer the 16 GB iPhone 6s for $5 a month and the 16 GB iPhone 6s Plus for $9 per month in device payments when customers trade in their iPhone 6 or iPhone 6 Plus.
AT&T did not participate in that price war and has said most of its postpaid customers are in family or business plans that are highly "sticky" and less susceptible to such offers. However, on the prepaid side, the analysts think AT&T has continued to see "strong growth," and now expect AT&T will add 325,000 net prepaid subscribers, up from 75,000 earlier.
AT&T introduced some new offers over the summer that could have goosed its prepaid numbers. Starting Aug, 21, AT&T said customers on its $60 GoPhone prepaid plan would automatically get up to 4 GB of high-speed data usage plus unlimited voice and testing from the U.S. to Mexico and Canada. AT&T's Cricket Wireless prepaid brand started offering unlimited voice and SMS messaging to and from Mexico and Canada for customers on Cricket's Smart ($50 per month) and Pro ($60 per month) monthly plans.
In a filing in late September with the Securities and Exchange Commission, AT&T said that it "expects more than 2 million total net adds in the third quarter with gains in every customer category (postpaid, prepaid, connected devices and reseller)." The company also said it expects "positive branded voice net adds in the quarter."
AT&T's performance will get it close, perhaps, to T-Mobile, whose CEO, John Legere, said in mid-September that T-Mobile had already exceeded the total net customer additions it reported for the second quarter, when it had 2.1 million. Speaking at the Goldman Sachs Communacopia Conference Sept. 18, Legere said that with 12 days still left in the third quarter T-Mobile had already matched the number of branded postpaid net customer additions and branded postpaid phone net customer adds it had in the second quarter, which were 1 million and 760,000, respectively.
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