Pacific Crest survey: T-Mobile's gains are slowing, but 'trends are deteriorating further for Sprint'

According to a new customer survey from investment banking firm Pacific Crest Securities, T-Mobile US' (NYSE:TMUS) momentum in the market will cool during the coming months. "Our survey indicates subscriber trends at T-Mobile are slowing," the analysts wrote in a new report. "This corresponds to what T-Mobile reported for postpaid subscriber porting ratios, where each carrier improved against T-Mobile q/q in 1Q16."

However, the analysts noted that a slowdown at T-Mobile is somewhat expected, considering the carrier's massive "uncarrier" momentum in the wireless market during the past few years. "We believe investors need to take T-Mobile's slowing subscriber trends in the context that the company has added nearly 20 million subs since its Un-carrier initiatives launched in March 2013, compared to its next best competitor, Verizon, who has added nearly 8 million subs. T-Mobile's model is reaching an inflection point where the company should begin to show strong FCF [free cash flow] growth, which could bring debt repayments and potential shareholder return in the form of share buybacks or dividends."

The analysts added that T-Mobile will likely continue to add subscribers at a "steady, albeit slower pace" over the long term because the carrier's marketing and promotional efforts tend to focus less on price and more on value-added services, "which we feel have a longer staying power than promotions based solely on price."

However, the Pacific Crest analysts said the situation is more dire at Sprint (NYSE: S). "Our survey currently indicates subscriber trends are deteriorating, where we believe the effects of this promotion are fading as promotions based solely on price generally fade overtime. We believe this is extremely important because we feel Sprint has very few levers to pull, besides price, in order to attract subscribers. If Sprint cannot gain subscribers with a 50%-off promotion, it could indicate that the health of the brand is poor," the analysts wrote.

T-Mobile in the first quarter reported what one analyst described as a "blowout," notching a total of 2.2 million customers during the quarter, marking its twelfth consecutive quarter of more than 1 million total customer additions. Sprint, meanwhile, scored 22,000 postpaid phone net additions in the quarter, marking its third consecutive quarter of positive growth.

"Today, the reality is that T-Mobile was able to pick up a lot of share at the expense of other carriers, mainly AT&T and Verizon, while our survey is showing expected subscriber trends decelerating at T-Mobile and Sprint," the analysts wrote. "Interestingly, subscriber trends appear weak across all of the carriers, with a distinct trend difficult to recognize."

And what of Verizon (NYSE: VZ) and AT&T (NYSE: T)? "Our survey work has not picked up on any meaningful changes going on at AT&T and Verizon. We continue to expect AT&T to report postpaid phone losses and expect Verizon to report phone additions, but less than last year," the Pacific Crest analysts wrote.

Special Report: How Verizon, AT&T, T-Mobile, Sprint and more stacked up in Q1 2016: The top 8 carriers

Related articles:
T-Mobile's 'blow-out:' 2.2M new customers and 10.6% revenue growth in Q1
Sprint scores 22K postpaid phone net adds but notches $554M net loss in mixed Q1

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