Sprint (NYSE:S) is expected to report weak postpaid subscriber results for the fourth quarter, likely losses of 150,000 customers, while Verizon Wireless (NYSE:VZ) will report 1.5 million new customers, according to estimates from Credit Suisse analysts. Meanwhile, according to the analysts, data plan sales at T-Mobile US (NYSE:TMUS) and AT&T Mobility (NYSE:T) likely grew, while remaining steady at Verizon and Sprint.
The analysis comes less than a week before the fourth-quarter earnings season kicks off in earnest. The fourth quarter is typically the busiest for carriers, and Credit Suisse analysts Joseph Mastrogiovanni, Henrik Herbst and Michael Baresich wrote in a research note that "while we did see a seasonal lift for the wireless carriers, sales seemed more sluggish than what we have seen in the past."
"Every quarter, we call or visit over 100 wireless retail stores to get a sense for quarterly trends. Last quarter, our checks indicated that the overall industry remained on solid footing, but that we were seeing some share shift to GSM carriers (T-Mobile and AT&T) from CDMA carriers (Sprint and Verizon) compared to our expectations," they wrote. "This quarter, we believe the carriers saw a seasonal lift in the second half of the quarter, but that it was less impactful than previous years. On a carrier specific basis, Sprint continued to struggle to hang on to customers, AT&T likely saw slightly more pressure from T - Mobile than we expected and Verizon managed to hang in well due to strength in tablet sales."
In other big picture thoughts, the analysts noted that carriers emphasized tablet promotions during the quarter and that AT&T and Verizon aggressively pushed tablet promotions on Black Friday. "Despite T-Mobile's launch of the iPad and free data on tablets during the quarter, there was a less of push from stores during our checks. This could have been due to inventory constraints, which is likely why tablet adds, while strong, paled in comparison to total postpaid adds in 4Q13 (69k tablets out of 869k total postpaid net adds)," they noted. "We saw some constraints at A T&T as well, with some stores out of stock of certain tablets in the weeks following Black Friday."
In terms of postpaid subscribers, the analysts expect Sprint to report losses of 150,000, higher than their previous estimate of 75,000. At Sprint stores the analysts noted slower holiday traffic. They also noted that Sprint is continuing to emphasize it unlimited smartphone data plans over all other options.
They also said they "noticed more discomfort with the recently-discontinued One Up program in comparison to other carriers' installment plans. Several stores noted that customers were initially uncomfortable with the program, which seemed to be partly due to sales reps' own unfamiliarity with the program. After an adjustment period, reps noted that, as customers became more familiar with the program and the upgrade benefit, uptake increased."
They wrote that "this initial customer discomfort is likely part of the reason that Sprint ended the One Up program last week. However, One Up was essentially replaced with Sprint Easy Pay, which was announced alongside the Sprint Framily Plan. Some of the confusion with One Up could continue in the short term with Easy Pay, as the plans are similar, but reps now need to learn the nuances of a new plan. However, the customer may find it more appealing due to its pairing with a lower-cost Framily plan. The traditional plans are still available, but we expect them to be phased out over time. A few stores even told us that the only plans available in their location was the Framily plans."
At Verizon, the analysts expect 1.5 million postpaid net additions in the fourth quarter. While Verizon may wind up ahead in subscriber additions, it was behind AT&T in at least one metric, the analysts wrote. "We believe that Verizon's Edge device installment plan continued to see moderate uptake, but not as strong as AT&T's Next program," they wrote. "While we did see signs of strength, including a few stores saying that most of their customers took Edge, the overall consensus was that customer reception was lukewarm."
At AT&T, the analysts are reducing their forecast for postpaid net additions slightly from 650,000 to 625,000. The analysts reported moderate store traffic and a surge in adoption of AT&T's Next handset upgrade plans. They also wrote that AT&T customers are buying higher-usage (and higher-priced) data plans. "Our previous channel checks indicated that there was a close split in uptake between the 2 GB Mobile Share plan and the 3 GB individual plan (no longer available)," they wrote. "During the fourth quarter, our inference from conversations with store representatives was that they were seeing somewhat greater adoption of 4-6 GB plans. This may be because sales agents were more inclined to suggest plans at these higher rates than we have seen in the past. Similar to last quarter, we saw some interest from customers in larger data plans (8-10 GB plans), but this was more of an outlier than the norm."
A major focus in the quarter for AT&T though was tablets, they wrote. AT&T had several tablet promotions, such as $100 off tablets purchased on a new two-year contract.
Other carriers have added discounts to their service pricing recently, including AT&T's Mobile Share Value plans, but the analysts do not expect Verizon to bite and get involved in a price war. "Verizon made no similar moves to offer a service discount for customers on a handset installment plan, making the early upgrade the attraction of the plan," they wrote. "We do not believe Verizon has any plans to offer a service discount with Edge anytime soon."
Earlier this month at the 2014 Consumer Electronics Show, T-Mobile CEO John Legere said that in the fourth quarter T-Mobile added 1.645 million customers. Of those, 869,000 were postpaid. "This was our best quarter in eight years," Legere said, noting that of those 869,000 postpaid adds, 69,000 were tablets. That figure is notable considering the carrier just started selling tablets in the fourth quarter.
The Credit Suisse analysts wrote that T-Mobile customers are increasingly choosing to take the carrier's $70 unlimited data plans, whereas previous checks indicated that most subscribers gravitated toward the $60 2.5 GB plan. In terms of tablets the analysts wrote that "our checks indicate that T-Mobile's most popular tablet data plan is the 2.5 GB plan, with the 4.5 GB plan rising in popularity. We think that larger data plans, such as the 6.5 GB plan, are also starting to gain traction, though they are still a small percentage of new customer adoptions. We believe that uptake of higher data plans could be delayed by the 2.5 GB of phone hotspot data included with the unlimited plans."
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