What to watch in Q1: Will T-Mobile pass Sprint? Will handset financing dominate? And more

Phil Goldstein

As the first-quarter earnings season draws near, one of the big questions is whether T-Mobile US (NYSE:TMUS) will officially surpass Sprint (NYSE: S) in terms of total subscribers to become the No. 3 U.S. carrier. It's one of several interesting questions that will be worth watching for as the carriers hold their quarterly earnings conference calls.

The T-Mobile-passing-Sprint question helps frame what the carriers will likely talk about during earnings season and what we should be looking forward to as 2015 unfolds. On the one hand, if T-Mobile passes Sprint, it won't make much of a difference in the day-to-day operations of each carrier's network--and probably won't force a radical change in pricing. On the other hand, T-Mobile might be able to claim to vendors that it has more clout and buying power, which could help it reduce prices for handsets or network gear.

I think the shifting would be much more important psychologically though. T-Mobile CEO John Legere would certainly crow about it, and it would reflect the contrasting fortunes of the companies: Sprint has been treading water for two years now while T-Mobile has been growing rapidly during that time. It could pressure Sprint to redouble its efforts to regain market share and grow its business.

With that in mind, here is what I'll be watching for, from a strategic perspective, from the four Tier 1 carriers when they report their earnings later this month:

Sprint: Sprint has a lot on its plate, but like Dan Hesse before him, CEO Marcelo Claure seems to have three clear priorities: "a great network, a compelling value proposition and good distribution," as he stated in February, according to a Seeking Alpha transcript. I'm hoping to hear more about all three. Sprint executives have said that they will detail more of their network plans during the company's calendar first-quarter earnings call. The company could announce plans to add as many as 20,000 cell sites to bolster its LTE network. I'm also hoping Sprint will detail its plan to expand its 2.5 GHz TD-LTE coverage in 2015 and how quickly it will deploy two-carrier carrier aggregation in that band, which it has said it would do by the end of 2014. "They are catching up, but they need to leapfrog," said 556 Ventures analyst (and FierceWireless contributor) William Ho. "I was hoping carrier aggregation was helping them leapfrog. When are they going to crank it up?" Carrier aggregation in that band is supposed to enhance the peak speeds of Sprint's LTE network to up to 100 Mbps. When will it be deployed on a widespread basis and how quickly?

Sprint also recently said it will reimburse all of the costs for a customer to switch over, including their Early Termination Fees and any remaining payments on equipment installment plans, no matter what customers owe. How long will that offer continue? And how effective and popular is Sprint's phone leasing option?

Finally, in terms of expanding distribution, Sprint plans to take up around a third of the space in more than 1,400 RadioShack locations. How quickly can it refurbish and move into those locations to start boosting sales? 

T-Mobile: For T-Mobile, the big question is whether it can maintain its momentum. T-Mobile added 8.3 million total customers in 2014, including 2.4 million in the first quarter of 2014. I doubt it will be able to match that first-quarter growth, since a lot of it was driven by T-Mobile paying off ETFs for switching customers. However, as T-Mobile CFO Braxton Carter predicted in February, T-Mobile is making a "significant investment of front-end growth in the year" as well. "You pay for that growth in year versus growth that comes onto the fourth quarter, where you just have the acquisition cost and no resulting margin coming in from those customers," he said, according to a Seeking Alpha transcript.

In addition to its new business plans, T-Mobile will now cover all outstanding phone and tablet equipment installment or leasing payments up to $650 per line for up to 10 lines when customers switch to T-Mobile from Verizon, AT&T and Sprint, and buy new phones. Also, T-Mobile said customers with promotional pricing plans can now keep those prices as long as they are T-Mobile customers.

A key question for T-Mobile is how it will maintain margins and EBITDA while targeting higher growth. "What are they going to do to maintain financial discipline? What are they doing to decrease costs?" Ho asked.

"T-Mobile will continue to apply pressure on the postpaid market in 2015 by increasing capex investment to complete its LTE build-out and through new Un-carrier initiatives that lower price points and negatively impact ARPU for the entire market," TBR Telecom Analyst Eric Costa said. "Sprint will also be aggressive in its pricing strategy in 2015, though the operator will be less successful in attracting new subscribers than its Tier 1 competition for at least the next two quarters."

AT&T: AT&T has already given a good view of how it will perform in the first quarter. The carrier said in March it expects to add around 400,000 postpaid customers, which would be a weaker performance than the year-ago period and below many analysts' expectations--but the carrier also expects to see its postpaid churn improve.

It will be more interesting to see how many customers purchase AT&T's Next equipment instalment and handset upgrade plan. In the fourth quarter, AT&T said 5.9 million, or 58 percent, of its postpaid smartphone gross adds and upgrades were on AT&T Next, up from 50 percent in the third quarter. How high will that figure go in the first quarter and the rest of the year? AT&T has largely shifted its wireless business toward a no-device-subsidy model so commentary here will be especially helpful.

Further, now that AT&T has closed its $2.5 billion deal to buy Mexican carrier Iusacell, how is that integration going? And how is AT&T going to integrate that with its Cricket prepaid brand? Last month, AT&T Mobility CEO Glenn Lurie noted to me that a good chunk of Cricket's base is Hispanic Mexican. That's why, he said, AT&T decided to provide unlimited calling to Mexico for customers on the $50 and $60 plans from Cricket.

Verizon: Verizon is likely going to report another consistent quarter of relatively strong postpaid subscriber growth. But Ho said the carrier will need to continue to retain its aura as the provider with the best wireless network. "They need to maintain that network for coverage and capacity," he said. "It's the boring stuff to make sure nobody leaves."

Former Verizon network chief Tony Melone said in February that the company could increasingly turn to small cells to enhance capacity. Getting more insight into those plans would help flesh out Verizon's network strategy, along with how quickly it might refarm its 1900 MHz PCS spectrum for LTE this year.

Also, Verizon Communications CFO Fran Shammo said in January he thought as many as 35 percent of Verizon's new customers would choose its Edge EIP plan, up from 25 percent in the fourth quarter. We'll see if that happens.

Those are some of the big questions I'll be looking to see if the carriers answer in the weeks ahead. It's going to make for an interesting year.--Phil

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