Entner: T-Mobile's ETF buyout successfully shapes the first quarter

Roger Entner Recon Analytics

Roger Entner

·        Though off a bit from the fourth quarter of 2013, the industry continued to expand strongly with total wireless subscriptions up 3.529 million as T-Mobile blew the doors off with record gains. AT&T also was strong, while Verizon had a rare off-quarter and Sprint had another setback on the road to recovery.

·        With more than 1.3 million net additions, T-Mobile surged forward with total subscriber gains that exceeded AT&T and Verizon combined. T-Mobile also reported that 21 percent of its branded contract customers took advantage of the early termination fee incentive that it was offering, which represents approximately 501,000 customers or 38 percent of net additions. However, the company continues to struggle at the bottom line with a $151 million loss during the quarter, compared to a $20 million loss in the final quarter of last year.

·        AT&T also reported solid numbers, gaining 625,000 postpaid customers. That was the carrier's best first-quarter performance in contract subscribers in five years, boosted by tablet sales. And, unlike T-Mobile, financials were strong as well in part because customers' embrace of long-term financing over handset subsidies is cutting the company's short-term costs.

·        Sprint stumbled again after an encouraging finish to 2013, suffering a net loss of 383,000 during the first quarter with drops in both postpaid and prepaid. Despite unusually public skepticism about a rumored merger, the company seems to be banking on an eventual combination with T-Mobile. SoftBank Chairman Masayoshi Son has been public that such a combination would enable him to launch a wireless price war in the U.S.

·        T-Mobile CEO John Legere is also talking up the benefits of consolidation. We still doubt regulators would allow Sprint and T-Mobile to come together in light of current policy concerns about market concentration in wireless, but Legere's recent commentary certainly adds intrigue.

·        Press reports indicate AT&T has initiated preliminary talks with DirecTV as a potential response to the Comcast / Time Warner Cable merger proposal.

·        Although falling off from its fourth quarter pace, Verizon continues to rack up subscriber gains with 539,000 postpaid ads during the first three months of the year. The company finally joined the pricing fray, introducing new plans during the first quarter, and it even began running ads that take a direct swat at T-Mobile's network. It was surprising that Verizon lost contract phone customers, indicating that it's no longer invulnerable. It remains number one in total subscribers and should hold onto that position for the foreseeable future.

·        Looking ahead, the questions for the current period are pretty much what we've asked before – can T-Mobile figure a way to turn subscriber growth into profits, can Sprint stop the bleeding in time to get the full benefit of the high-speed Spark network it's trying to get deployed before it's too late, will any of those rumored M&As turn into deals, and is the 1Q performance of Verizon an aberration or a harbinger of things to come?

4Q 13 Subscriber Analysis

Contract

No-contract

Wholesale and Connected Devices

Total

AT&T  

625,000 +59,000
566,000

(256,000) -224,000
(32,000)

693,000 +418,000
275,000

1,062,000 +253,000
809,000

Sprint

(231,000) -289,000
58,000

(364,000) -686,000
322,000

212,000 +121,000
302,000

(383,000) -1,065,000
682,000

T-Mobile

1,323,000 +454,000
869,000

465,000 +353,000
112,000

603,000 -61,000
664,000

2,391.000 +746,000
1,645,000              

Verizon Wireless ***

539,000 (1,034,000)
1,573,000

10,000 -70,000
80,000

 

 549,000 -1,104,000
1,653,000

US Cellular

(93,000) -22,000
(71,000)

13,000 +39,000
(26,000)

(10,000) -14,000
(4.000)

(90,000) +21,000
(101,000)

Tracfone **
(MVNO)

 

1,852,000 +1,236,000
616,000

 

1,852,000 +1,236,000

616,000

Total

2,163,000 +832,000
2,995,000

(132,000) -588,000
456,000

1,498,000 +261,000
1,237,000

3,529,000 -1,159,000
4,688,000

Data is current quarter net adds, change of net adds, previous quarter net adds
* Off due to rounding.
** Not counted in totals to avoid double counting. Tracfone is additive to no-contract and subtracted from Wholesale 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 overcomes prepaid losses to close gap on Verizon. Though locked in a tough ad war with T-Mobile, including competing cash bids for new customers, AT&T registered a net gain of 1.062 million subscribers. Along with customers acquired from Leap, the quarterly gain pushed its total subs to 116 million. AT&T touted customer enthusiasm for its Next upgrade and Mobile Share plans with roughly 35 percent of new customers choosing a handset financing plan. It reported a 625,000 gain in postpaids and an increase of 693,000 in connected devices to more than offset a continuing decline in prepaid plans. Wireless profit climbed to 5.05 million during the quarter from $3.9 million in the fourth quarter and $4.68 million in the same period a year ago.

Sprint numbers decline. After surprising gains in both postpaid and prepaid in the final part of last year, Sprint's subscriber numbers fell sharply in the first quarter. The company lost 231,000 contract subscribers and 364,000 prepaid customers during the quarter. Those drops were partly offset by gains in tablets, but it still reported a total net loss of 383,000 after gaining 682,000 in the final three months of last year. In one bit of bright news, the company said its financial numbers were better with a first quarter loss of $151 million compared to $643 million in red ink in the same period of 2013. The company also said it expects its HD Voice service to be available nationwide by July and that it hopes to boost the speed of its Spark network as it brings new infrastructure online in the second half of 2014.

T-Mobile logs record subscriber gains, outpaces rivals. T-Mobile kept driving forward in the first quarter with gains in every segment and registered total net additions of 2.39 million subscribers. It reported contract gains of 1.32 million, easily outpacing all other carriers in that category. It also reported 465,000 in prepaid gains and a 603,000 jump in wholesale/connected devices. In a bid to keep the subscribers coming in, T-Mobile opened the second quarter with "Operation Tablet Freedom," which will allow customers to add an LTE tablet to their existing account at no monthly fees until next January. For T-Mobile, the flip side of its subscriber growth is that it's losing money. After relatively modest losses in recent quarters, T-Mobile said it lost $151 in the first three months of this year. Operating loss was a more modest 28 million, but that compares with operating profits of 139 million in the previous three-month period and 379 million in the first quarter of 2013.

Verizon reports smaller gains. Industry leader Verizon continued to post strong financial data, but fell off a bit in subscriber growth with some rare signs of weakness vis-à-vis its top competitors. The company reported a solid net gain of 539,000 in postpaid subscribers, but that was a far cry from a 1.57 million gain in the previous quarter and masked a dip in postpaid phone customers, a segment that slipped by 138,000. That drop was more than overcome by new tablet connections, but in economic terms it's disappointing because phone customers are generally more profitable. Still service revenue and income remained strong, up 7.5 percent and 14 percent respectively from the year earlier quarter.

U.S. Cellular struggles in first quarter, but reports uptick in prepaid. Increasingly squeezed by larger rivals and networks with greater reach, U.S. Cellular continues to struggle to hold its ground. The carrier suffered a net loss of 93,000 postpaid customers and also reported losses in connected devices and wholesale. All told, it lost 90,000 customers during the quarter after losing 101,000 in the final quarter of last year. On the plus side, prepaid subscriptions were up by 13,000. Also positive, the company registered a gain in average service ARPU, which rose to $60.19 during the first quarter compared to 57.05 in the fourth quarter and $57.63 in the year ago period.

Tracfone has big quarterly gain from acquisition. Tracfone added 1.85 million customers in the first quarter after a gain of 616,000 in last year's fourth quarter. The biggest share of the gain was attributable to its acquisition of Page Plus, which added 1.4 million customers to Tracfone's book of business.

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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