According to a new report by Moody's, the U.S. wireless industry remains on pace to continue growth through next year despite the increasingly competitive pricing tactics by the nation's Tier 1 wireless operators. And according to a separate report from MoffettNathanson, T-Mobile US (NYSE:TMUS) is the carrier that is best positioned to benefit from that growth.
In a new report on its outlook for the telecom industry, Moody's Investor Service reported that operating income for the U.S. telecom sector overall will grow around 2 percent annually through 2016. For the wireless industry specifically (which Moody's said comprises about 80 percent of total telecom industry revenue), the firm said wireless revenue growth will be slightly above 3 percent this year, and will expand to 4 percent next year "due to increasing data demands, increasing smartphone penetration and continued uptake of connected devices such as tablets."
The firm added that operating profits among telecom carriers will increase by about 10 percent this year, largely due to AT&T's (NYSE: T) July acquisition of DirecTV. However, the firm added that "operating profits will organically grow about 2% annually over the next 12 to 18 months as a result of slower wireless profit growth due to expanding pricing pressure in the wireless industry. Ongoing margin erosion in wireline is also something we expect, as lower-margin modern services continue to replace higher-margin legacy services and somewhat offset wireless growth."
Moody's predicted that wireless carriers will continue to spend money to improve their networks through next year. "We expect wireless capex to total wireless revenues to remain around 13% to 14% for the next several years," the firm said.
And how will this growth play out among the nation's top wireless carriers? According to a separate report on the wireless industry by research firm MoffettNathanson, T-Mobile appears to be the carrier that will create the most value from its customers during the next few years. "The clear winner here is T-Mobile; the company is now generating the bulk of economic revenue in the sector as a whole," the MoffettNathanson analysts said in a new report. "Verizon continues to create value, but at a level sharply below the rate of a few years ago. AT&T is very likely no longer creating economic value in its wireless business, a remarkable development. Sprint's economic value has continued decline, even if the rate of decline has steadily improved (that is, it is getting 'less worse')."
MoffettNathanson's conclusions on the wireless sector came from the firm's calculation of each's carrier's "customer lifetime value" (CLV). As the firm explained, "CLV avoids the distortions of revenue and EBITDA recognition that have so clouded financial results, and it neatly captures the trade-offs between customer acquisition cost, ARPU, and customer duration (churn rates)."
MoffettNathanson pegged T-Mobile's CLV at $1,406, above Sprint's $532 but below Verizon's (NYSE: VZ) $3,005 and AT&T's $2,796. But the firm noted T-Mobile appears to be in the best position to improve its CLV over time.
- see this Moody's release
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