The continued subscriber momentum at T-Mobile (NYSE:TMUS), coupled with solid expected results from Verizon Wireless (NYSE: VZ) AT&T Mobility (NYSE: T) could mean that Sprint (NYSE: S) struggled in the fourth-quarter to win many net postpaid subscribers, according to financial analysts.
T-Mobile reported this week that it added 2.1 million total net wireless customers in the fourth quarter, including 1.3 million branded postpaid net adds (of which 1 million were phone customers). Based on those figures and comments from telecom executives at this week's 2015 Citi Internet, Media & Telecommunications Conference, Credit Suisse said it expects Verizon to report 1.85 million postpaid net subscriber additions in the fourth quarter, AT&T to notch 850,000 and Sprint to add 250,000. The Credit Suisse analysts noted that Verizon and AT&T likely "benefitted from strong tablet and other device growth."
Wells Fargo analyst Jennifer Fritzsche wrote in a research note that T-Mobile intends to hit its 2014 EBITDA guidance of $5.6 billion to $5.8 billion, implying fourth-quarter EBITDA of around $1.7 billion. The figures show T-Mobile's pricing strategies are not unduly impacting its profitability.
The iPhone 6 and 6 Plus launch was a "major boon" to T-Mobile's fourth-quarter subscriber metrics, Fritzsche said, "which could have been even better had the iPhone supply not been constrained."
"This announcement continues TMUS's impressive momentum in sub growth, particularly with handsets which comprised +80% of postpaid net adds for the year," she wrote. "The question remains how this sub growth translates to profitability and margins."
Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata noted that since T-Mobile was relatively quiet in terms of promotional activity in the fourth quarter, "we believe the results point to improving brand recognition. T-Mobile only launched the 10GB 4-for-$100 and Unlimited Family Plan offers in mid-December, months after peers launched 'double-data' promotions in early October. Given the lower than expected volumes, we see upside to our EBITDA forecasts."
Meanwhile, Credit Suisse analyst Joseph Mastrogiovanni wrote in a research note that "both Verizon and AT&T have indicated that they also achieved solid subscriber growth during the fourth quarter despite elevated churn. This could imply Sprint saw less traction than expected."
Sprint CEO Marcelo Claure said that in the fourth quarter the company scored close to 1 million net customer additions, which would be a big year-over-year improvement from the 477,000 total net adds Sprint recorded in the fourth quarter of 2013. Claure added that about 400,000 of those new subscribers were prepaid net adds, which surpasses T-Mobile's fourth-quarter prepaid net adds. However, Claure did not indicate how many net postpaid customers Sprint added in the fourth quarter.
Claure admitted that Sprint still has the highest churn in the industry and he said the company is working hard to combat that problem. He said that December was a very strong month for the company and that Sprint dramatically reduced its customer losses. He also said Sprint's new promotion, which offers to cut Verizon and AT&T's customers' bills in half if they switch to Sprint and buy a new phone, will be extended throughout 2015.
Fritzsche noted that Claure said in recent days, Sprint has been porting positive against Verizon and AT&T with postpaid subscribers and positive against T-Mobile when prepaid is factored in. He said that Sprint is focused on improving postpaid handset net adds, which improved from a loss of 2 million in the previous quarter to just 1,000 to 2,000 in December.
Sprint has also seen improvement in the credit quality of its customers, Claure said, adding that prime customers tend to stay with Sprint for 60 months while subprime customers generally stay for only 24 months.
Sprint is using the so-called Customer Life Value (CLV) metric to measure its customer base (the number is derived from customer operating profit multiplied by the length of time with Sprint). In certain cases, CLV numbers are 3x to comparable levels from the previous quarter, Claure said.
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