Unlike in the second quarter, when the big question was whether Sprint (NYSE: S) would finally cede its position as the No. 3 carrier in the U.S. market to T-Mobile US (NYSE:TMUS), there is not a ton of drama to be expected during the third-quarter earnings season, which kicks off in the wireless industry next week. T-Mobile is expected to maintain its spot, and Sprint is likely going to show continued improvement in postpaid phone subscriber additions. However, that doesn't mean there won't be a lot to talk about or pore over.
In fact, I expect the top executives of the four Tier 1 carriers to begin to position themselves for 2016 and beyond in earnest. The operators have already started to do so, as Verizon (NYSE: VZ) said last month it expects full-year 2016 earnings "may plateau" at 2015 levels. AT&T (NYSE: T) has started to position itself as a converged video solutions provider following its $48.5 billion deal to buy DirecTV.
To get you ready for the third-quarter earnings conference calls, here are the most pressing questions I think the top executives at Tier 1 carriers need to answer over the next few weeks, starting with Sprint and moving up the charts:
Sprint:
Sprint CEO Marcelo Claure said in mid-September that the company had added postpaid handset customers for four months straight through August, the first time the carrier had done that in 40 months. Given the launch of the iPhone 6s and 6s Plus last month, and its decision to offer incredibly cheap new iPhones via leasing when customers traded in an iPhone 6 or 6 Plus, that trend likely continued in September. Will those subscriber trends continue through the fourth quarter and can Sprint keep it up?
Besides improving subscriber trends, Sprint has a great deal on its plate in terms of its network densification plans. Claure has said "virtually all" of Sprint's existing macro cell sites will be upgraded to support 800 MHz, 1900 MHz and 2.5 GHz for LTE. Sprint plans to deploy thousands of new macro sites and initially tens of thousands of small cells. However, Sprint has said little beyond those broad outlines of its "Next Generation network" plan, other than that it "won't be a traditional slow and expensive build" and that using its 2.5 GHz spectrum for backhaul is one of several elements to the company's backhaul strategy. Yet key questions remain. How much progress has Sprint made on the densification so far and how quickly will it proceed? How many small cells will Sprint add -- 20,000, 70,000, more? And which vendors is Sprint working with?
Sprint has also been setting up leasing companies with parent SoftBank and other companies to finance the leasing of handsets and network gear. What is the structure of these leasing companies? How will they be financed and how much money will they save Sprint?
Finally, Sprint has said it plans to cut at least $2 billion in operating expenses in the next six months. Where will it find the savings and how many jobs will be cut?
T-Mobile
A lot of the suspense about T-Mobile's earnings is already over. The carrier is expected to report another quarter of incredibly strong subscriber numbers. With 12 days left in the third quarter, T-Mobile CEO John Legere said last month the carrier had already exceeded the total net customer additions it reported for the second quarter, when it had 2.1 million. He said T-Mobile had already matched the number of branded postpaid net customer additions and branded postpaid phone net customer adds it had in the second quarter, which were 1 million and 760,000, respectively. So what should we all be looking for? Now that Sprint has decided not to participate in next year's 600 MHz incentive auction, T-Mobile is seen as the main competitor to Verizon and AT&T in the push to grab airwaves. T-Mobile CFO Braxton Carter said last month the carrier might have as much as $10 billion it could spend in the auction, but he doesn't think T-Mobile will need to spend that much to obtain the spectrum it wants. How much money is T-Mobile really willing to pony up in the auction and does it need a 600 MHz nationwide footprint?
There has also been renewed speculation that T-Mobile might be a takeover target for a cable company like Altice. Legere has spoken of what he sees as the logic of a merger between T-Mobile and a cable player, given that more content is going mobile. Yet it also strikes me as odd that the "uncarrier," a company that under Legere has made its mission to be consumer-friendly and shake up the industry, would partner with a cable company, a breed of corporation that consumers seemingly love to hate. Under what circumstances would T-Mobile merge with a cable company or a non-traditional wireless carrier?
AT&T
Like T-Mobile, AT&T has also pre-announced its subscriber figures and said last month it "expects more than 2 million total net adds in the third quarter with gains in every customer category (postpaid, prepaid, connected devices and reseller)." I expect AT&T executives to talk about the continued adoption of its Next equipment installment plan and the shift away from smartphone subsidies, which it has been pushing heavily. Will AT&T set a date for when it will no longer offer two-year contracts and subsidized smartphones? It could be coming soon.
AT&T executives have also talked about how with DirecTV as part of the AT&T family it has much greater scale and flexibility to offer video to customers practically anytime and anywhere. Some analysts have speculated that AT&T will eventually roll out its own over-the-top mobile video strategy. Will AT&T articulate an OTT video strategy or indicate if it might pursue such a path?
Verizon
Verizon, meanwhile, is it the midst of rolling out its own OTT video application, called Go90, which became available to wireless consumers across other carriers on Oct. 1. The service is aimed at millennials but so far has not generated a ton of buzz. How is Go90 faring in the market in terms of consumer adoption and feedback, and what are Verizon's plans to flesh it out?
Verizon has also discussed how it expects the Internet of Things to make up a larger part of its revenue streams starting in 2017 and has been strengthening its position in the smart energy market and dedicated networks for enterprises. How quickly will this business ramp up?
And finally, there is speculation that Dish Network (NASDAQ: DISH) and Verizon could strike a deal by year-end for Verizon to get access to Dish's spectrum through a leasing arrangement. What kind of spectrum deal would Verizon be willing to strike with Dish?
These are some of the burning questions I think the carriers need to address. Some may get answered but most probably won't. Either way, I'll be listening in. Be sure to check back over the next month with our third-quarter earnings page to stay on top of all of the news.--Phil