Analysts: Verizon likely to lead in Q3 subscriber additions while Sprint struggles to regain momentum

Verizon Wireless (NYSE: VZ) is likely going to lead the pack in terms of postpaid net subscriber additions in the third quarter, according to a research note from financial analysts at Jefferies. However, the analysts expect AT&T Mobility (NYSE: T) and T-Mobile US (NYSE:TMUS) to also perform well, though they expect Sprint (NYSE: S) will continue to struggle to gain traction with its new plans and promotions.

"We believe that industry postpaid net addition momentum continued on the back of an ongoing secular shift from prepaid to postpaid and strong connected device sales," Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata wrote in a research note. "T-Mobile continues to deliver disproportional subscriber growth, though AT&T and Verizon should also deliver solid results. While Sprint re-entered the fray with new pricing and promotions, we fear limited success given its network status and expect the carrier to remain a donor of subscribers."

Verizon and T-Mobile have already given glimpses of how well they performed in the third quarter. Verizon Communications CEO Lowell McAdam said earlier this month at an investor conference that the carrier's wireless postpaid retail net additions had grown 40 percent so far during the third quarter when compared with last year's period, when the company posted 927,000 additions.

The Jefferies analysts expect Verizon to report 1.325 million postpaid net adds, up from their previous estimate 1.144 million. "Our estimate reflects a more balanced contribution from handsets, which represents 30% of adds, up from 20% last quarter," they wrote. "Given the higher volumes and lower Edge [Verizon's handset upgrade program] uptake (14% of activations), our wireless service margins drops to 50.1%, down from 52.4% previously."

AT&T is expecting a strong third quarter in terms of churn and overall results, according to a senior AT&T executive. "We're not the victim in the quarter," AT&T's John Stankey recently said at an investor conference. The company had 1.026 million postpaid net adds in the second quarter, and the Jefferies analysts said they continue to expect AT&T to report 1.019 million postpaid net adds in the third quarter.

T-Mobile added 760,000 branded net customers in the month of August alone, which was its best month ever in terms of postpaid net adds, according to CEO John Legere. The figures included 552,000 postpaid net additions and 208,000 prepaid net adds. To put those numbers in context, T-Mobile added 672,000 branded net customers in the full third quarter of 2013, and had 1.01 million branded net subscriber additions for the entire second quarter of 2014.

"After a record August, it is likely that T-Mobile's September postpaid net additions saw some impact from Sprint plan changes, but nonetheless likely remained at a healthy elevated pace," the analysts wrote. "We raise our postpaid handset net addition forecast to 950K (from 750K), but lower our broadband net addition forecast to 300K (from 650K) as momentum from last quarter's tablet 'unleashed' promotion likely subsided."

The Jefferies analysts expect higher handset subscriber additions to cut into T-Mobile's EBITDA, which they expect to be around $1.47 billion for the quarter. For all of 2014, they are also lowering their expectations of total postpaid net adds at T-Mobile to 4.9 million from 5.2 million, due to lower expected tablet sales. T-Mobile itself has said it expects to add between 3 million and 3.5 million branded postpaid net subscribers in 2014. The company added 2.23 million branded postpaid customers through the first two quarters of this year.

Sprint is the wild card. Since CEO Marcelo Claure took the helm in mid-August the company has radically revamped its pricing plans for families and individual subscribers. First, Sprint launched shared data plans that offer double the data of similarly-priced plans from Verizon and AT&T. Through Sept. 30 Sprint is offering a promotion that gives a family with up to 10 lines 20 GB of shared data for only $100 per month through the end of 2015, plus an extra 2 GB per line for up to 10 lines.

Sprint also launched a $60 plan for unlimited voice, texting and data plan for individuals. The plan undercuts T-Mobile's $80 unlimited data plan by $20. Sprint also introduced a $50 unlimited plan for individuals who buy Apple's (NASDAQ: AAPL) iPhone 6 and 6 Plus.

However, according to the analysts at Jefferies, all of that may not amount to much in terms of Sprint's third-quarter results. "We believe results were weak leading into September, but expect new pricing actions and iPhone promotions are driving improved store traffic and consumer interest," they wrote. "Though unlikely to move the needle in 3Q, the key question will be whether recent momentum is sustainable, or merely a temporary band-aid."

The Jefferies analysts expect Sprint to report 262,000 branded postpaid net adds in the third quarter and 507,000 for all of 2014. "Promotions are leading consumers to EBITDA-friendly [equipment installment] plans and a new leasing option, though we expect such EBITDA benefits to be offset by pricing-driven ARPU reductions and increased marketing to reinvigorate the brand," they added of Sprint.

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