‘No reason to believe that trends are set to improve’ for carriers: New Street Research

Apple iPhone 8 (Apple)
Apple's launch of the iPhone 8 is expected to spur competition among carriers.

Wireless service revenues have continued to slide this year among the major carriers, New Street Research said, and they’re only getting worse. And they’re not likely to rebound any time soon.

“Revenue per customer and total service revenue have declined for the past three years, and the pace of declines accelerated again in 2Q17 (again),” Jonathan Chaplin of New Street Research wrote in a recent note to investors. “In the past, the carriers have blamed declines on customers adopting installment plans; however, with 80% of subscribers in these plans this is no longer the major driver. Competition is driving down price, and competitive pressures may well get worse later in the year. We continue to be wary of AT&T and Verizon, and recommend Sprint and T-Mobile on M&A upside.”

Postpaid smartphone churn has decreased as each of the major carriers has launched unlimited-data plans. Verizon, AT&T and T-Mobile all saw churn decrease both yearly and sequentially in the second quarter. Sprint’s postpaid churn of 1.5% was worse than its rivals and was up from previous quarters, Raghu Gopal of CCS said in a recent blog post, but was down annually.

Competition is widely expected to heat up substantially in the coming weeks, however, as a slew of high-end smartphones hits the market. Early carrier promotions for Apple’s new iPhones aren’t exactly cutthroat—not yet, at least—Samsung recently unveiled the Galaxy Note 8—which will contend with the iPhone X at the very high end of the market—and Sprint recently began taking preorders for the first phone from Andy Rubin’s Essential Products, for which it has exclusive selling rights. Meanwhile, Google is expected to throw some gasoline on the fire in the form of a second-generation Pixel.

Wireless network operators will surely look to leverage those new phones as they scramble to grow their market share in a saturated market. And that isn’t good news for carriers that are already struggling to shore up their bottom lines.

“Industry churn will likely rise following the launch of the new iPhone, which will accelerate share gains at the challengers. If they just maintain share of gross adds from the low levels reported in 2Q17, T-Mobile and Sprint would claim 43% of gross adds while only having 27% of industry customers. To make matters worse for incumbents, T-Mobile will likely increase marketing and promotions in 2H17, driving higher share of decisions than they reported in 1H17,” Chaplin wrote. “Wireless service revenue has declined for the last 11 quarters, and the pace of declines got worse again this quarter…. (T)here is no reason to believe that trends are set to improve.”