Major U.S. Carriers Face More Subscribers, Less Revenue | Cannon Group | Your trusted experts in telecom management.
Analyzing Recent LTE Growth
July 21, 2014
How to Achieve Innovation & Cost Savings in a Digital IT Environment
July 28, 2014

Major U.S. Carriers Face More Subscribers, Less Revenue

Major U.S. Carriers Face More Subscribers, Less Revenue

Q2 Estimates and Early Results Reveal an Underlying Problem

July 23, 2014

Carriers’ official earnings for Q2 2014 haven’t yet been released, but initial results and estimates paint an interesting picture for the future of major U.S. wireless carriers (AT&T, Sprint, T-Mobile and Verizon).

Specifically, the focus is on overall net postpaid subscriber additions in Q2…

 

All is Not What it Seems

At a glance, the numbers look promising. Generally, higher net additions of postpaid subscribers mean higher earnings and better margins for wireless carriers – and analysts expect that the sum of postpaid subscribers in Q2 for all four major U.S. carriers will total 2.7 million* overall.

Compared to our Q2 carrier earnings analysis from 2013, that’s more than double the numbers from last year with the exception of Sprint, as the carrier works toward improving its network (see: Sprint is Making Moves to Expand its LTE Network and Sprint Collaborates with Rural Carriers to Expand LTE).

Experts largely attribute this increase to the popularity of equipment installment plans* (EIPs). Because EIPs offer service discounts and separate the cost of a device from wireless service, the postpaid option becomes less distinguishable from prepaid; thus subscribers are increasingly considering postpaid.

In addition, postpaid subscriber growth could be propelled by simultaneous growth in the tablet market(sparked by increasing tablet sales and promotions).

 

Why These Numbers are Deceptive

Major U.S. Carriers Face More Subscribers, Less Revenue

2.7 million overall postpaid subscribers, more than 200 percent growth, a promising outlook – for carriers, it seems too good to be true… And that’s because it is.

In this case, the important thing to remember is that the aforementioned methods for increasing subscribers can also pose significant setbacks. In other words: growth now comes at a higher cost, and the effort may not be worth the reward.

Firstly, competition in the market is at an all-time high, thanks to T-Mobile’s dynamic growth in recent months (as well as its uncertain future) in addition to the ongoing struggle between carriers for the best network coverage.

Secondly, the extra postpaid subscribers are relatively less valuable. Take Verizon, for instance, whose estimated earnings remained the same as before, despite its high subscriber numbers.

And thirdly, carriers may book some revenue up-front for new plans for an initial shot of revenue and margins; however, those benefits are cancelled out by service discounts and higher retention costs. As proof, experts estimate that margins rose by a mere 1.3 percent in Q2 while revenue per postpaid user dropped by 3.4 percent year-over-year.

Check out this chart from The Wall Street Journal*:

 

Major U.S. Carriers Face More Subscribers, Less Revenue

 

A “Bright Spot”

Looking at this chart, Verizon is expected to feel the least impact due to lower adoption. Meanwhile, 75 percent of T-Mobile’s subscriber base was already on at the end of Q1, contributing to the drop in revenue per postpaid subscriber – and the carrier expects that number to reach 85 to 90 percent* by the end of 2014.

Compared with the other three carriers, and in light of these results, experts point out that T-Mobile’s future is the most intriguing. Experts predict* that T-Mobile’s margins will improve and average revenue per postpaid user should begin to stabilize.

And that’s not taking into account the exciting fact that Sprint plans to bid on T-Mobile in the coming months…

 
————————————-
 

* Gottfried, Miriam. Wireless Operators’ Growing Pains, The Wall Street Journal. Dow Jones & Company, Inc.


Subscribe to our blog

Sign up to receive a monthly rundown of our blog posts!