Weekly Carrier Notes: Sprint’s Postpaid Growth, Chinese 4G Tie-Up Talks, Verizon’s Content Deals

The telecom industry had an interesting week, with Sprint (NYSE:S) publishing a mixed set of FY’Q2 numbers, which saw the carrier miss earnings expectations but make progress in terms of key postpaid subscriber and revenue metrics. Separately, there were reports that China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) would be sharing 4G base stations. Below is a quick review of the news that mattered in the wireless industry.

Sprint Missed FY’Q2 Estimates, But Performed Well In Two Key Areas

Sprint, the fourth largest U.S. wireless carrier, posted a wider-than-expected fiscal second quarter loss of about $585 million, or $0.15 a share, weighed down by higher promotional spending and postpaid phone subscriber losses from prior periods. However, the carrier performed well in two crucial areas – posting its first set of postpaid phone net subscriber additions (237,000) in more than two years, while continuing to improve its average billing per user (up 2% year-over-year to $70.64). Although Sprint’s consolidated revenues continued to decline (6% year-over-year to about $8 billion) on account of subscriber losses in prior periods, we believe that an inflection point may be near, considering the improving subscriber and billing metrics. Separately, the carrier is accelerating its restructuring activities, targeting run rate operating cost reductions of $2 billion by the end of 2016.

• Trefis has a $5 price estimate for Sprint, which is roughly in line with the current market price. We are modeling revenues of about $34 billion for CY 2015. Our EPS estimate for FY’15 stands at -$0.32, compared to a consensus of -$0.43, per Reuters.

China Telecom and Unicom’s Reported 4G Collaboration

According to 21st Century Business Herald, the smaller two Chinese wireless carriers China Telecom and China Unicom are preparing to share their 4G base stations, allowing them to better take on larger rival China Mobile, which is leagues ahead in the race for lucrative high-speed customers. ^[1] Although the details of the deal are not clear, it would likely go a step beyond the tower sharing joint-venture that the three major telecoms recently formed, allowing them to share underlying communications equipment. This would enable the smaller two carriers to extend their 4G coverage, while reining in capital and operating costs. In our view, the deal indicates that the government could eventually decide to just merge the two smaller carriers, deepening its reform of the largely state-run telecom industry. China Unicom had indicated that it could build 500,000 4G base stations by the end of this year, while Telecom has said that it would build 460,000 LTE base stations in the same time frame. ^[2]

Verizon’s Content Deal With The NBA

Verizon signed a multi-year content partnership with the NBA to offer daily highlights, original content and access to live out-of-market games through NBA League Pass on the carrier’s new free, ad supported streaming video service go90. ^[3] The two companies will also collaborate on bringing original exclusive series onto the fledgling platform. Verizon has been doubling down on mobile video and advertising, as its core wireless business contends with increasing saturation. Mobile ad spending is expected to grow 50% this year to $28.7 billion, per research firm eMarketer. While Verizon has done the groundwork in terms of building technology and getting some advertisers interested, content will ultimately determine the long-term uptake of go90. Verizon is betting that bringing in exclusive content from the likes of the NBA could allow it to create a degree of differentiation for its service, which faces intense competition from established players such as YouTube and Facebook.

• Trefis has a $55 price estimate for Verizon, which is roughly 20% ahead of the current market price. We are modeling revenues of about $131 billion for 2015, with an EPS of $4.05. This compares to a consensus of about $3.96 according to Reuters.

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More Trefis Research

1. China Mobile Falls On China Unicom, Telecom 4G Tie-Up Talk, Barrons, November 2015 [↩]
2. China Unicom Changes Tack, Announces Plans to Expand 4G Services, Caixin, September 2015 [↩]
3. Verizon Strikes Deal With NBA for Mobile Video Content, WSJ, November 2015 [↩]