Sprint (NYSE: S) is going to show positive postpaid subscriber additions in the second quarter thanks to improved network performance and the continued adoption of its "Cut Your Bill in Half" promotion, according to a research note from analysts at Wells Fargo.
In the note, Wells Fargo analysts Jennifer Fritzsche, Eric Luebchow and Caleb Stein wrote that they "recently completed some channel checks and believe Sprint is holding its own more than the Street is modeling in terms of handset adds."
They think Sprint will add 220,000 postpaid customers in the second quarter, up from their previous estimate of just 65,000 and Wall Streets' consensus of 184,000. They think that Sprint will still likely lose around 30,000 postpaid handset subscribers in the quarter, but they believe the company is "closer to breakeven than the Street is modeling," with Wall Street analysts expecting Sprint to lose 116,000 postpaid phone customers in the second quarter.
"We estimate the company will add 250K tablets in the quarter, which is slightly below Street estimates of +337K," they wrote. "Driving this better handset addition is the continued take rate of its 'Cut Your Bill in Half' promotion as well as better network performance."
The analysts noted that in April Sprint announced it will expand its company-owned retail footprint to 1,435 Sprint/RadioShack stores. "While we do not believe this has kicked in yet, we believe by almost doubling its distribution--it will have a positive impact on 2H 2015 subscriber growth," they added.
Further, the analysts noted that Sprint has won or shared first place for 166 RootMetrics awards for network reliability, speed, data, call or text performance so far in the first half of 2015 in 115 markets. "By way of comparison, in these 115 markets, Sprint won or shared (first-place) in only 25 awards in 1H 2014 and 124 awards in 2H 2014," they wrote. "We believe this recognition offers tangible evidence that Sprint is very much headed in the right direction on the network side (despite recent news of senior network executives exits). Good network in our view is key to keeping subs with it!"
Meanwhile, in a separate research note, the analysts wrote that they think T-Mobile US (NYSE:TMUS) will add 768,000 postpaid customers in the second quarter from their previous estimate of 526,000, thanks to strong momentum from promotions.
"This activity includes the 2 lines for $100 of unlimited LTE data and the 4 lines for $100 of 2.5GB/line initiatives that are reportedly ending on June 27," they wrote. "TMUS also ran its 'Never Settle for Verizon' promotion during the quarter offering a free 14-day trial to VZ subscribers. Our checks show that porting activity continues to be positive against its competitors, with CFO Braxton Carter mentioning on May 18 that porting ratios have stepped up since Q1 against every other carrier."
T-Mobile "should also be able to gain incremental subs" from AT&T Mobility (NYSE: T) more so than compared to the second quarter as AT&T was "aggressively re-pricing its base to lower price plans introduced in February 2014. This promotional activity, along with its elevated network spending, should pressure margins in Q2, but positions TMUS to expand margins throughout the 2H of 2015."
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