How Leveraged Are U.S. Wireless Carriers?

Wireless carriers typically carry a significant amount of debt, on account of their capital intensive businesses and stable revenue streams, which allows them to borrow at relatively low rates. Below we compare the key leverage metrics for the big four U.S. wireless players.

AT&T has the highest debt load of the four carriers, with roughly $130 billion in total debt as of March 31, fueled partly by its 2015 acquisition of DirecTV. Verizon, the largest wireless operator, has about $110 billion in debt, on account of its acquisition of Vodafone’s 45% indirect investment in Verizon Wireless in 2014. Despite the high debt loads, both carriers’ leverage and coverage ratios are relatively modest, given their large and stable cash flows, which are underpinned by high margins and their large and loyal base of customers.

Although T-Mobile increased its debt load towards the end of last year to possibly fund the acquisition of low band spectrum in the FCC’s ongoing incentive auction, the carrier still has the lowest debt load, in absolute terms, among nationwide carriers. Sprint’s financial position remains the most precarious of the nationwide carriers, given its sizable debt to equity ratio and weak interest coverage ratio. That said, the carrier has been making some progress in stabilizing its operations, posting positive postpaid phone subscriber growth, while freeing up liquidity by creating handset and network equipment lease vehicles.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively.

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