T-Mobile is likely to be the only major U.S. carrier to report growth in postpaid net handset adds during the first quarter, analysts at Wells Fargo Securities said. The operator is expected to post 1.4 million net new users, enjoying its twelfth straight quarter of more than 1 million overall net adds.
In a research note published in advance of quarterly earnings that will begin to be announced by carriers next week, senior analyst Jennifer M. Fritzsche and colleagues predicted T-Mobile "will have by far the strongest sub growth" among the tier-one carriers, adding 960,000 postpaid net adds including 768,000 handsets and 440,000 prepaid net gains. The operator will fall short of posting a fourth straight quarter of more than 2 million overall net adds, however, according to Wells Fargo.
The analysts credited T-Mobile's typical "counter-cyclical strategy of more aggressively promoting in the first half of the year" during a traditionally slow post-holiday lull. They predicted the carrier will report postpaid phone churn of 1.3 percent, flat year-over-year and down 16 basis points sequentially.
Wells Fargo last month lowered its fourth-quarter adjusted EBITDA expectations for T-Mobile to $1.99 billion, slightly less than consensus estimates of $2.02 billion. "We expect wireless service revenue to continue its strong growth, with our $6.61 billion estimate growing 13.6 percent year-over-year," the analysts wrote. "T-Mobile has signaled that it will prioritize EIP over leasing in the first half of 2016, so we only expect 441,000 new leased device activations in Q1."
While T-Mobile continues to grow its subscriber base and ramp up wireless service revenues simultaneously, its competitors are recently choosing to focus on the bottom line rather than market share. AT&T is expected to post services revenues of $14.9 billion, which would mark the first positive growth since the first quarter of 2014, but is predicted to suffer net handset losses of 200,000. Wells Fargo expects Sprint to report 75,000 net postpaid phone losses but will enjoy increasing wireless margins. And Verizon is expected to post 120,000 net postpaid phone losses and a total revenue margin of 44.5 percent, up from 38.4 percent sequentially.
"Q1 was a fairly quiet gross add quarter for most of the national carriers – T-Mobile (which is always more promotional in Q1) is to be the exception," Wells Fargo analysts wrote. "There are many questions overhanging the industry right now: how will carriers translate the growth in data usage into revenue growth (particularly when more is being thrown into the data bucket); will the upgrade cycle continue to be extended in a new EIP-centric world; what will be the outlook for capital spending related to spectrum and network densification? These are longer-term questions that will likely be recurring themes for the industry throughout the course of the next few years."
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