Entner: New wireless customers chose no-contract over contract by 10 to 1 in Q1

Roger Entner Recon Analytics

Roger Entner

·        In the first quarter of 2013, the industry grew by 1.36 million subscribers. New wireless customers chose no-contract over contract by 10 to 1.

·        In an interesting turn of events, this quarter, Tracfone has become the fastest growing carrier in the United States with 839,000 new customers, followed by Verizon Wireless with 720,000 and a resurging T-Mobile with 579,000. The ongoing competitive nature of the wireless industry is impressively displayed by these rapid changes in growth.

·        Sprint, Clearwire and Leap were the only carriers losing customers. Sprint lost customers due to further declines on the Nextel side, Clearwire's losses were due to the switch of Sprint from WiMAX to LTE, and Leap's decline in users was due to being undercut by lower cost offers from other carriers and from Lifeline.

·        The massive shift towards prepaid again in the first quarter is quite significant. A 10 to 1 margin in favor of prepaid further indicates that the contract segment is tapped out and strongly in the redistribution phase. The low hanging contract customers are gone and the competition for contract customers is intense.

·        The recent launch of Aio Wireless is another proof point that the no contract segment is quickly heating up and is turning into a battlefield between the established operators who are increasingly utilizing a multi-brand strategy and successful MVNOs such as Tracfone who have already established their multi-brand strategy.

·        Churn has continued to move towards historic lows as an indicator of increased customer satisfaction.

·        U.S. Cellular's strategy of selling its most competitive markets and using the proceeds to further build out its 4G LTE markets is compelling as it indicates that there is room for rural carriers. The company should also be lauded for making the 700 MHz A-Block licenses work while most other A-Block winners have not yet.

·        The overwhelming theme during 1Q 2013 was the drama involving T-Mobile and MetroPCS in one merger and Sprint, Clearwire, Softbank, and Dish Network in another merger. After sweetening the deal and reducing the amount of debt the new entity would have to carry, T-Mobile was able to close the deal with MetroPCS. Regarding the second merger, we are still watching the saga unravel before our eyes.

1Q 13 Subscriber Analysis

Contract

No-contract

Wholesale and Connected Devices

Total

AT&T

296,000

($184,000)

179,000

291,000

Sprint

(560,000)

369,000

(224,000)

(415,000)

T-Mobile

(199,000)

202,000

227,000

579,000

Verizon Wireless

677,000

43,000

 

720,000***

Leap Wireless

 

(9,000)

(84,000)

(93,000)

Metro PCS

 

108,000

 

108,000

US Cellular

(74,000)

23,000

113,000

62,000

Clearwire *

 

108,000

(270,000)

(162,000)

Tracfone *
(MVNO)

 

839,000

 

839,000

Total

140,000

660,000

211,000

1,360,000

* Off due to rounding.
** Not counted in totals to avoid double counting. Tracfone is additive to no-contract and subtracted from Wholesale totals. Clearwire wholesale was not added to totals.
*** Verizon has stopped releasing wholesale and connected device connections, which makes it impossible to calculate its total connection number. Therefore only retain connections are provided.

AT&T's growth was respectable but trailing that of Verizon Wireless, with 296,000 contract additions and a solid increase of 365,000 postpaid tablets. In order to catch up with Verizon, AT&T is spending more than $12 billion per year on wireless capital expenditure. As a result, AT&T has reached 200 million POP coverage with LTE ahead of schedule. Both prepaid and reseller numbers contracted, with resellers going through a regular exercise of removing non-active customers. Postpaid churn stayed again at historic lows of 1 percent, while wireless data revenue grew a very healthy 21 percent as smartphone sales continued to dominate device sales. Mobile Share plans are being very well received by customers and represent already 14 percent of the postpaid customer base. The take rate for 10 GB or above is more than a quarter, indicating a voracious appetite for data.

Sprint lost customers again. The decline in Nextel contract customers was expected, but the anemic growth of only 12,000 postpaid Sprint platform customers was surprising. Considering the modest success of Sprint with its unlimited offer compared to the account level metered plans from AT&T and Verizon, the company has to become more effective in communicating its value proposition. Churn was 1.84 percent on the Sprint platform, which is a welcome development in the right direction but which was immediately countered by management's expectation of elevated churn for the next several quarters. On the bright side, the Nextel network is going to be shut down in Q2 2013 and will stop being a hemorrhaging wound for the company. Furthermore, APRU increased further and the Network Vision project is ahead of schedule, with quarterly capital expenditure of $1.8 billion. All of that is overshadowed by Sprint's merger drama with Dish. After the negotiations between Sprint and Dish came to a snag, Dish upped the ante by not only bidding for Clearwire, but also for Sprint itself.

T-Mobile moved into the right direction, even though it continued to lose 199,000 contract customers, up from a loss of 515,000 last quarter by adding a total of 579,000 customers. Prepaid and wholesale picked up the slack and added 202,000 and 227,000 respectively. This makes T-Mobile the third fastest growing carrier during the first quarter of 2013. Another sign of the T-Mobile recovery is that contract churn came in at 1.9 percent, down from 2.5 percent. The impact of the un-carrier campaign and iPhone launch is not yet included in these numbers.

Verizon Wireless added industry leading contract net additions of 677,000 and non-contract additions of 43,000, while maintaining contract churn of roughly 1 percent. Verizon expanded its 4G LTE footprint to 297 million POPs, which is 95 percent of its 3G coverage. Verizon continued to benefit from its Share Everything plan that continues to deliver for the company with strong growth in revenues and profitability. The rapid growth of Tracfone implies that Verizon Wireless added roughly 349,000 wholesale connections from Tracfone alone.

Leap Wireless lost 93,000 customers, mostly from its discontinued daily PAYGo product line. The traditional monthly service had a decline of 9,000 customers. Leap core wireless churn was 2.9 percent and overall churn was 3.6 percent, which is respectable for the no-contract segment, which indicates problems with customer acquisition, rather than retention.

MetroPCS added 108,000 new customers in its final quarter as a standalone company before it merged into T-Mobile.

US Cellular lost 74,000 contract customers, but added 23,000 and 113,000 from wholesale. In a little noted turnaround, US Cellular has started offering Apple iPhones after proclaiming for a long time it would not need the devices to be competitive. In addition, US Cellular is continuing building out its 4G LTE network and will bring it to 87 percent of their customers this year using the A- and C-Block 700 MHz spectrum.

Clearwire lost 162,000 customers mostly due to Sprint rapidly moving away from WiMAX. The blow was softened by adding 108,000 new retail customers. On the revenue side, this change in customer mix was actually beneficial as revenues increased quarter over quarter.

Tracfone added 839,000 new customers in 1Q 2013. This is the most of any carrier in the United States. The growth came predominantly from its' Straight Talk and Telcel America brands. As a result usage shot up to 526 minutes per month.

Roger Entner is the Founder and Analyst at Recon Analytics. He received an Honorary Doctor of Science from Heriot-Watt University. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications. Follow Roger on Twitter @rogerentner

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