Evercore: Extended upgrade cycles, slowing subscriber growth likely plagued carriers in 2Q

U.S. carriers likely suffered through light handset upgrade sales and ever-slowing subscriber growth during the second quarter, analysts at Evercore ISI predicted.

"We believe upgrades will be light in 2Q given the lack of an iconic device launch and the extending handset replacement cycle driven by the industry's shift to EIPs (equipment installment plans)," the analysts wrote in a research note published ahead of second-quarter earnings results. "As such, we expect upgrade rates in 2Q to be lower year over year for all carriers."

As Evercore noted, Apple has reportedly opted to take three years to introduce major changes to its iPhone, extending the refreshment cycle by a year. And a recent study from Recon Analytics indicates the move toward EIPs has increased the handset upgrade cycle to 28 months, nearly doubling the 15 months seen under subsidized plans.

Fewer upgrades during the quarter will likely boost carriers' EBITDA, Evercore observed, because handset sales decrease EBITDA. But fewer upgrades also result in lower equipment revenues.

Meanwhile, the typically slow second quarter was likely to be even sleepier than normal for a few reasons.

"Against the backdrop of a slower seasonal quarter, we identify three factors that are likely to contribute to slowing subs growth: (1) focus on profitability (not chasing each sub), (2) industry maturation, and (3) the lack of a new iconic device," according to Evercore. The analysts expect AT&T to report 260,000 net postpaid phone losses and lowered their estimates for postpaid phone net additions for Verizon, T-Mobile and Sprint.

"As we noted before, T-Mobile's efforts to expand its marketing footprint should provide an opportunity for more sustainable subs momentum," they wrote.

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