Wireless carriers are no longer looking to undercut each other on price, according to Wall Street research firm Oppenheimer.
“We believe the communications sector has bottomed relative to the market and expect to see stronger 2H performance,” the Oppenheimer analysts wrote in a recent report to investors. “The wireless industry will benefit from relatively benign competition and better ARPU [average revenues per user]. Carriers are focused on bundling in more features to grow ARPU vs. price cutting at this point. The introduction of premium unlimited plans will also support ARPU, as will recent price increases. Carriers will ramp efforts to bundle OTT video services into unlimited data plans which promotes cord cutting.”
The analysts pointed out that wireless operators are no longer reducing prices to gain customers. Indeed, many wireless operators are introducing more expensive tiers of unlimited wireless service, including with additional services like streaming video. Further, the firm noted that operators’ promotions for fall smartphones like the new Apple iPhone XS and XS Max aren’t as aggressive as they have been in previous years.
“Currently, iPhone promotions are stable relative to prior years; carriers offer ‘buy one get $700 off’ with seemingly no undercutting by any operator,” the analysts wrote. “This compares with 2016/2017’s promotional trade-in for $650/$350 of credit toward monthly bills, respectively.”
Importantly, the firm wrote that operators’ actions could generally help raise ARPU, figures that have been declining in recent years amid stiff competition on price and the general move toward unlimited data services.
“This promotional environment supports ARPU as telecoms focus on new offerings vs. cutting prices,” the firm wrote. “Longer upgrade cycle lengths, owing to an increasing transition to better components and more expensive phones, are a positive for churn metrics. Interestingly, because telecoms are effectively subsidizing their packages with services of companies employing grow-at-all cost strategies in winner-take-all markets, this promotional environment is threatened by the very same macro risks that serve to make telecoms defensive investments—perhaps reflecting accurate fears that we are in a late-stage economic cycle.”
Interestingly, the firm also offered a view into what might happen in the wireless space in the coming years, from a broader, macro point of view: “We do think in the long term that wireline/wireless networks will converge, and this will lead to huge cost savings,” the firm wrote. “In the next five years 5G will be positive for the wireless sector, as will bundling of OTT video. We see 5G as enabling wireless to capture some wireline broadband, paid TV, and IOT revenues, on lower operating expenses over time. Positively, capex spending is becoming more efficient from virtualization but also increasing.”