Analysts: T-Mobile is leading in Q2 handset subscriber adds, but Verizon pressures with promotions

T-Mobile US (NYSE:TMUS) will likely lead the industry again in the second quarter in handset subscriber additions, while Verizon Wireless (NYSE: VZ) could see improvement in its subscriber figures thanks to recent promotions, according to analysts at investment bank Jefferies.

Meanwhile, the analysts think that AT&T Mobility (NYSE: T) has been more willing to lose feature phone or marginally-attached smartphone customers to other carriers in order to stabilize average revenue per user. They also think Sprint's (NYSE: S) "Cut Your Bill in Half" promotion could be running out of steam and that the carrier may need to refresh its promotions.

In a research note, Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata wrote that despite the M&A speculation surrounding Dish Network (NASDAQ: DISH), T-Mobile still has momentum and is "continuing to attract the majority of industry handset additions."

They noted that T-Mobile expects to shut down MetroPCS' legacy CDMA network on June 21, roughly a quarter ahead of schedule, and that the carrier is likely going to be accelerating its 700 MHz A Block deployment in New York City. The analysts think T-Mobile will add around 60,000 handset customers in the second quarter and post EBITDA of $1.83 billion, down around $50 million from their previous estimate due to higher network spending.  

Verizon, the analysts argue, "has been a bit more active with price promotions" than its peers, recently reintroducing the 10 GB for $80 per month promotion or its shared data plans along with the 15 GB for $100 price point, as well as offering port-in and trade-in credits.

"We believe the actions are tactical with an eye towards improving churn, which should dip sequentially, though it faces a tough [year-over-year comparison]," they wrote. They also think Wall Street analysts are underestimating how many Verizon customers could move to its Edge equipment installment plans to finance smartphones in the long term, particularly if Verizon follows AT&T and eliminates subsidized smartphones plans in its indirect sales channels.

"This would place further pressure on [average revenue per account], which is already beginning to reflect the impact of rising Edge penetration, with declines likely to accelerate throughout the year," they wrote. Edge plans typically bring in lower service revenue. Given the promotional activity, the analysts have increased their expectations for how many postpaid handset customers Verizon will add in the second quarter to 153,000 from 102,000, and they lowered their ARPA forecast to $153.37, which would be a 4 percent year-over-year decline.  

While much of the focus with AT&T remains on the closing of its DirecTV (NASDAQ: DTV) transaction, the analysts noted that "AT&T appears to have maintained its more disciplined wireless strategy. Specifically, we believe the company is willing to cede handset share in favor of stabilizing handset ARPU, an appropriate tactic in our view."

This strategy could be put to the test though, the analysts cautioned, as Verizon continues to undercut at the popular 10 GB price point for shared data plans. For the second quarter, the analysts think AT&T will lose 167,000 handset customers, which would be an improvement from the first quarter but is more than the Wall Street consensus of 87,000.

"Nevertheless, we see significant improvement in the pace of ARPU declines, with handset ARPU expected to fall 4.5% YoY versus declines of 8.6% in 1Q," they wrote. "With AT&T eliminating subsidy plans in indirect channels, we increase Next EIP uptake, incrementally pressuring ARPU expectations."

The analysts noted that Sprint expects to begin adding handset customers later this year and they anticipate "modest progress" in the second quarter, with Sprint losing 166,000 handset customers, compared with 201,000 in the first quarter.

"We believe the company may need to refresh promotions as the 'Cut Your Bill in Half' is now over 6 months old and appears to be having a diminishing impact against peers," they wrote. "We anticipate a modest QoQ churn improvement, slightly better than the relatively flat Street forecast."

They think Sprint's postpaid churn will tick lower, to 1.82 percent in the second quarter, and more customers will adopt device financing plans, increasing wireless EBITDA by 2.5 percent to $1.9 billion and margins to 29.4 percent.

Related articles:
T-Mobile extends 'Never Settle' free 2-week trial with promotion targeting Verizon
Sprint's Boost doubles data allotments, while T-Mobile's MetroPCS offers 4 lines for $100
AT&T subscribers flock to Next installment plans in Q1, making up 65% of all smartphone sales
Verizon adds fewer postpaid subs in Q1 than expected, loses prepaid and 3G smartphone customers
T-Mobile expects to add more than 3M postpaid subs in 2015
Sprint clings to No. 3 carrier spot in Q1, as tablet customer additions are offset by phone losses

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