nTelos Wireless to launch device installment plan this summer, but impact still unclear

Sprint (NYSE: S) wholesale partner nTelos Wireless plans to launch an equipment installment plan later this summer similar to offerings from larger carriers, but the financial and competitive impact of the launch is still not clear.

On nTelos's first-quarter earnings conference call earlier this month, CEO James Hyde revealed that the carrier is finalizing its device installment plan options, and the company is "excited about offering what we feel will be a differentiated program customers will want to take advantage of."

Tier 1 carriers have increasingly embraced such plans, shifting revenue from service revenue to equipment revenue by removing the up-front cost they pay to subsidize smartphones. AT&T Mobility (NYSE: T) noted in its first-quarter earnings that the adoption rate of its Next handset upgrade program was 35 percent in the period, when taking out about 1.1 million accelerated smartphone upgrades that occurred in the quarter. Verizon Wireless  (NYSE: VZ) said the adoption rate of its Edge upgrade program in the first quarter was less than 15 percent but the company expects that to potentially double into the second quarter with the launch of Edge in Verizon's indirect channel.

Hyde said nTelos has been "very deliberate in our approach around early upgrade programs and equipment installment plans. Not having those during the fourth quarter and the first quarter has hurt us. So while introducing those programs beginning now and then following the equipment installment a little bit later in the summer, I think will only help."

Representatives for nTelos did not immediately respond to requests for comment on the timing of the launch or how an installment plan from nTelos might differ from its larger rivals. Hyde mentioned that there might be a "yearly upgrade option," which would be similar to installment plan offerings from the Tier 1 carriers.

Hyde said nTelos expects the plans to affect its financials in much the same way they have affected the carrier's larger rivals. "So there's an offset from service revenues that's replaced by some level of equipment revenue," he said. "So at a macro level, I think that's the way that we're thinking about that as well."

Ntelos ended the first quarter with 468,000 total wireless subscribers, having added 3,400 net new customers during the period. The company said operating revenues increased 2 percent to $122.1 million during the quarter.

Analysts at Jefferies wrote in a research note that the company has been "pressured by the aggressive competitive environment," and that while it has promoted its value-centric nControl plans and Early Termination Fee payoff promotions, it has been "handicapped" by the lack of a no-contract equipment installment plan.

"The planned introduction of EIP in 2H14 should provide more solid footing, but at a cost, as NTLS will have to maintain its value proposition against the national carriers' already discounted EIP plans, likely pressuring ARPA," Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata wrote. "Long-term, the new plans could improve subscriber trends," they added, as nTelos gets access to Sprint's LTE network.

Sprint and nTelos, the nation's seventh largest wireless carrier, recently changed and expanded their wholesale agreement to give each other access to their respective LTE networks through 2022. Under the revised terms Sprint and nTelos agreed to, nTelos will continue to be the exclusive network provider for Sprint services in its western Virginia and West Virginia service area, which covers around 2.1 million POPs. Sprint customers will have access to nTelos's LTE network and nTelos will have access to Sprint's 800 MHz, 1900 MHz and 2.5 GHz spectrum throughout the territory. Additionally, nTelos retail customers will also have access to Sprint's nationwide LTE network outside the nTelos network footprint.

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