Verizon Wireless (NYSE: VZ) made a strong push into equipment installment plans (EIPs) in the second quarter, according to analysts' preview of the carrier's earnings, which will be reported tomorrow. That push mirrors AT&T Mobility's (NYSE:T) enthusiasm for EIP, though Verizon is likelier going to report stronger postpaid subscriber results for the second quarter than AT&T, according to Evercore ISI.
In a pair of research notes, Evercore ISI analysts Jonathan Schildkraut and Justin Ages wrote that they expect Verizon "will show solid subscriber performance in an ongoing competitive environment" and that the carrier will report "the second-highest postpaid net adds in the sector" with 970,000 postpaid net subscriber additions, weighted toward tablet customers.
That estimate is slightly below those of other financial analysts. Wells Fargo analysts said recently they think Verizon added 1.06 million postpaid customers in the second quarter, up from their previous estimate of 970,000. Meanwhile, analysts at Macquarie Capital think Verizon will add 1.162 million postpaid customers, up from their previous estimate of 782,000.
T-Mobile US' (NYSE:TMUS) said earlier this month it added 2.1 million total customers in the second quarter, including 1 million postpaid customers, and could lead the market in postpaid subscriber growth.
For the Evercore analysts, a key factor to focus in on with Verizon's earnings will be its Edge EIP numbers. The analysts think 60 percent of Verizon's smartphone sales will come from Edge in the second quarter, up from their previous estimate of 50 percent. That should boost Verizon's earnings, they added.
"Given the accounting benefits associated with EIPs (vs. the traditional subsidized model), our 2Q estimates for wireless EBITDA increases 2.3% to $9.98B (from $9.66B)," they wrote. For the second quarter, they expect Verizon to report wireless EBITDA margins of 43.2 percent, which would be up 0.9 percent year-over-year.
However, they estimate that "well over 100% of this improvement comes from the accounting change associated with the rapid scaling of EIP customers. That is, on an apples-to-apples basis, VZ's wireless EBITDA margins are actually contracting" 1.76 percent year-over-year.
For the past several weeks Verizon has been running a promotion to encourage customers who switch to the carrier to sign up for Edge. Switching customers get a $200 trade-in credit when they port their number over and turn in their old smartphone. Customers then need to buy a new smartphone via Edge, which lets customers pay off their phone in installments (though they need to pay off the full cost of the phone before upgrading). Then, customers will get a $100 bill credit within two to three billing cycles.
Meanwhile, the Evercore analysts think AT&T will add 60,000 postpaid customers, which would be down 41.5 percent from the 1,026,000 it added in the year-ago period. "Importantly, we believe tablets will account for over 100% of adds," they wrote.
"For 2Q, we expect T to report 600K postpaid net adds," they wrote. "We believe T will continue to struggle to add postpaid phones and tablets will represent over 100% of the postpaid adds. We believe this stands in contrast to TMUS (which already announced 2Q customer data – 760K phone adds) and VZ (which we expect to have positive phones)."
The analysts also are estimating that 80 percent of AT&T's smartphone sales for the second quarter will come through its Next EIP plans. That should boost AT&T's EBITDA up, they added. AT&T reports its earnings on Thursday afternoon.
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