Jefferies cut its estimates for postpaid net adds in the fourth quarter for both Verizon and AT&T, citing increased competition during the holiday quarter that likely spurred increased churn.
The analysis firm said Verizon likely added 786,000 net postpaid customers during the quarter, down from a previous estimate of 943,000, although Jefferies maintained its postpaid churn prediction of 1.03%. Jefferies also ratcheted down its estimated upgrade rate for T-Mobile to 8% from 8.3%, but raised predicted EBITDA service margins to 55.3%, up slightly from the previous 54.9%.
The revisions were published in a research note distributed to investors as U.S. carriers prepare to post fourth-quarter earnings.
Jefferies lowered its estimated subscriber gains for AT&T even more dramatically, noting the carrier’s ongoing strategy of focusing on high-end customers as it looked to leverage DirecTV. The carrier launched its OTT video offering DirecTV Now late in the quarter, and it continues to offer an unlimited data mobile plan to customers who also subscribe to the satellite TV service.
“We tweak our estimates (for AT&T) to better reflect 2G shutdown pressures and seasonality of NFL costs; however, we modestly improve our 4Q EPS estimate, to 65 cents, due to non-operational changes,” Jefferies analysts wrote. “We lower postpaid net adds to 315,000 (from 449,000), predominantly due to lower gross adds (we raised postpaid churn 1 basis point to 1.17%) as the emphasis on wireless-DirecTV bundles throughout the quarter likely limited some traffic; embedded in our forecast is a loss of 250,000 handsets, which continues to be influenced by the feature phone base and the recent shutdown of the 2G network.”
The 933,000 postpaid phone net additions T-Mobile reported two weeks ago in preliminary results “were largely in line with expectations,” according to Jefferies, and handset ARPU is expected to come in at $48.89, up 1.8% from the third quarter.
Finally, Jefferies raised its estimated fourth-quarter churn for Sprint to 1.62%, up from the previous estimate of 1.57%, as the nation’s fourth-largest operator focused on striking a balance between growing its market share and boosting the bottom line. The firm lowered its estimates for both postpaid net adds (from 430,000 to 410,000) and overall handsets (from 425,000 to 400,000), and said a consensus estimate of 1,500 prepaid losses now “appears conservative given management’s guidance on eliminating low-engagement users.”
“Given a net takedown in volumes, our margin estimates move higher (T-Mobile the exception), though EPS is largely unchanged,” the analysts wrote. “We expect the focus to be on the 2017 outlook.”