The sudden war over unlimited data is taking a toll on the nation’s two largest wireless network operators, UBS analyst John Hodulik said Wednesday.
T-Mobile and Sprint threw the lobbied the first salvos in the battle last August, when they introduced unlimited voice, text and LTE data plans nearly simultaneously. The move prompted Verizon to respond last month, reversing its long-held opposition to unlimited plans, and forced AT&T to make its unlimited plan available to all customers after previously limiting them to users who also subscribe to DirecTV.
The ultra-competitive market is proving costly to Verizon and AT&T, Hodulik said.
“In 1Q, we expect AT&T’s and Verizon’s Wireless revenue/EBITDA to fall annually as they continue to lose postpaid phone subs and see pressure on ARPU,” he wrote in a note to subscribers. “While the move to unlimited could eventually be neutral to ARPU, it will initially provide a headwind due to lower overage and the optimization of plans.
“This, combined with greater promotional activity, will likely weigh on margins as well,” he continued. “In addition, we calculate lower gross adds and upgrade rates will cause equipment revenues to decline MSD (mid-single digit), hurting total wireless revenue trends.”
AT&T is likely to post a .6% quarterly decline in service revenue year over year, according to UBS, and wireless EBITDA is expected to fall .9%. UBS expects Verizon’s service revenue in the first quarter to decline 4.5%, and the firm said lower upgrade rates will weigh on equipment revenues.
But the competitive market is likely to provide a boost for T-Mobile in the first quarter, helping the No. 3 U.S. carrier to continue its momentum. UBS lowered its estimate for T-Mobile’s net postpaid handset additions from 800,000 to 750,000, but said the carrier continues to have a bright future.
“We expect T-Mobile to have another solid quarter adding the majority of the industry’s net subs while growing revenues and EBITDA double-digits,” Hodulik wrote. “We largely maintained our long-term estimates, including $4.5 billion of free cash flow in 2019.”