Analysts: T-Mobile likely to beat Verizon, AT&T and Sprint in handset subs in Q1

T-Mobile US (NYSE:TMUS) is likely going to best Verizon Wireless (NYSE:VZ), AT&T Mobility (NYSE:T) and Sprint (NYSE: S) in terms of handset subscriber additions in the first quarter, according to a new report from financial analysts at Wells Fargo. However, the other carriers likely will continue to make strides in tablets. Additionally, the analysts are looking for a more detailed outlook for the rest of the year from Sprint, especially on its capital expenditure plans.

In a research note, Wells Fargo analysts Jennifer Fritzsche, Eric Luebchow and Caleb Stein wrote that they expect the first-quarter earnings season to be "somewhat an uneventful one."

"We expect most of the share gain on the handset side to be seen from TMUS--as we would expect negative handset adds from the other carriers," they wrote. "We do not expect a large change in guidance any major change of guidance from the carriers. However, given it is Sprint's 4th fiscal quarter, we would expect more detail to come regarding its outlook for its 2015 fiscal year."

The analysts expect T-Mobile to add 1.03 million postpaid customers in the quarter, slightly lower than Wall Street's average estimate of 1.08 million. "Recall, TMUS messaged it would be extremely promotional in Q1, which we've seen through offers such as the Data Stash initiative to allow customers to roll over unused data and the Carrier Freedom initiative to pay off device payment plans for new customers," they wrote. "While these moves should support solid customer growth in Q1, they come at the cost of lower profitability."

Under its "Carrier Freedom" program, T-Mobile will cover all outstanding phone and tablet equipment installment or leasing payments up to $650 per line for up to 10 lines when customers switch to T-Mobile from Verizon, AT&T and Sprint. However, customers will then need to buy a new phone from T-Mobile.

That likely will weigh on T-Mobile's profits and margins. Wells Fargo lowered its first-quarter EBITDA estimate to $1.25 billion from its earlier estimate of $1.53 billion, with the Wall Street consensus at $1.33 billion. "We expect the company to reiterate its prior 2015 guidance of $6.8-7.2B (vs. our $6.96B estimate) and positive levered free cash flow," they added. Wells Fargo is looking for commentary from T-Mobile on its 700 MHz A Block LTE expansion, the 600 MHz incentive auction and porting ratios.

At Sprint, the Wells Fargo analysts think the carrier will likely add around 50,000 postpaid customers,  although this will likely be driven by tablet additions--the analysts believe Sprint will report a net loss in handset customers.

Sprint has been heavily marketing its "Cut Your Bill in Half" offer targeted at AT&T and Verizon subscribers. The Wells Fargo analysts expect Sprint's EBITDA margins to drop slightly to 24.2 percent from 25.3 percent a year ago as Sprint focuses on growing its subscriber base.

The analysts also expect Sprint executives to offer more specifics around the company's network plans. "Given there have been no specific vendor announcements to date, it remains somewhat of an open question as to how much detail Sprint will actually give," they wrote. "That said, we still expect Sprint to be active with an aggressive network push in 2015--with small cells playing a critical role."

They also think Sprint's management will talk about its recent deal to expand its distribution with RadioShack, and are hoping for some commentary on Sprint's capex outlook, churn and margin trends, pricing promotions and ARPU trajectory, capital and liquidity needs and maybe working with Google's (NASDAQ: GOOG) forthcoming MVNO.

AT&T has already said it expects to add around 400,000 postpaid customers, driven largely by tablet additions. AT&T also expects that its Mobile Share Value plans, which do not come with subsidized smartphones, will account for around 60 percent of its total postpaid subscriber base at the end of the first quarter.

The strong Mobile Share Value adoption, coupled with ongoing integration of the Cricket prepaid brand, will likely cut into AT&T's service revenues. Wells Fargo estimates AT&T to report wireless service revenues of $14.7 billion, which would be down 4.4 percent from a year ago. However, the analysts expect AT&T's postpaid churn to drop to 1.05 percent, from 1.07 percent in the fourth quarter and 1.22 percent a year ago.

Meanwhile, the analysts think Verizon will lose handset subscribers but will post "solid" tablet gains. They expect Verizon to add around 620,000 postpaid customers in the quarter, slightly higher than Wall Street's consensus of 616,000.

"We believe the highlight of the VZ quarter will be the significant improvement in wireless profitability vs. Q4 levels," they wrote. Specifically, they think Verizon's wireless EBITDA margin on service revenues will be 50.4 percent, up from 42.0 percent in the fourth quarter. They also think Verizon's postpaid churn will improve to 1.05 percent from 1.14 percent in the fourth quarter and 1.07 percent a year ago. The analysts are looking for Verizon's commentary on its over-the-top video strategy and small cell expansion.

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