U.S. Wireless Carriers: 2014 In Review

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It was a very interesting and eventful year for the U.S. wireless carriers, with intense competition and aggressive price wars among major players. In this article, we compare  Verizon(NYSE:VZ), AT&T (NYSE:T), Sprint (NYSE:S) and T-Mobile (NYSE:TMUS) in terms of their performance in the first nine months of the year using some key financial and operating metrics. ((Press release, AT&T, Oct 22 2014)) [1] [2] ((Press Release, Verizon, Oct 21 2014)) [3] ((Sprint Earnings Call Transcript, Seeking Alpha, Nov 3 2014)) ((Press Release, Sprint, Nov 3 2014)) ((Presentation, Sprint, Nov 3 2014))

Financial Comparison

Among the major U.S. wireless carriers, market leader Verizon generated the most revenue from wireless services in the first three quarters on account of its large postpaid subscriber base and higher plan charges than rivals. Verizon can afford to charge more for its services because of its network quality and expansive 4G LTE and enhanced LTE (XLTE) coverage. Its LTE network covers over 500 locations, while XLTE has been launched in over 400 cities across the country. Verizon’s XLTE can potentially be twice as fast as its existing 4G network, depending on user location. However, T-Mobile took the lead in top line growth, with its wireless revenues growing over 21% year-over-year in the nine period period ending September 2014, on account of robust postpaid subscriber gains (6.2 million). Sprint trailed the other carriers because of its declining user base and low ARPU (Average Revenue Per User).

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In terms of EBITDA and EBITDA margins, Verizon again led its peers owing to its higher-margin plan offerings, limited marketing expenses and lower proportion of customers opting for no-subsidy plans. Both Sprint and T-Mobile lag behind the market leaders owing to their high marketing expenses and lower service revenues. While T-Mobile’s service revenues and margins have improved over the last few quarters, Sprint is likely to face downward pressure in the near term owing to its declining postpaid subscriber base and heightened competition.

Data Compiled For Jan-September 2014 Verizon AT&T Sprint T-Mobile
Wireless Revenue
($ Billion)
Service 54.4 46 21.2 16.5
Equipment 6.7 8.2 3.1 4.6
Wireless Revenue Growth y-o-y (%) 7.2% 5.2% 0% 21.7%
Wireless EBITDA ($ Billion) 27.6 19.8 4.6 4.3
Wireless EBITDA Margin (%) 44.3 36.6% 18.9% 20.3%
Postpaid Subscriber Adds (Millions) 3.5 2.44 -0.91 3.6
Total Postpaid Subscriber Base (Millions) 100.1 75.1 29.9 25.9
Wireless Subscriber Adds (Millions) 3.5 3.7 -0.3 6.2
Total Wireless Subscriber Base (Millions) 106.2 118.7 55 52.9
Wireless Postpaid ARPU ($) $56.8 NA $60.2 $47.2
Overall Wireless ARPU ($) $57.0 $43.6 $42.9 $46.3
Postpaid Churn (%) 1.0% 1.0% 2.2% 1.5%
Overall Churn (%) 1.3% 1.4% 2.8% 2.7%
4G Network Coverage (% Of U.S. Population) 98.0% 95.0% 82.3% 76.0%

Operating Data Comparison

One of the most important metrics for comparing the performance of wireless carriers is wireless subscriber additions, and more importantly their postpaid subscriber additions. In terms of postpaid subscriber adds, Verizon and T-Mobile were the biggest gainers with 3.5 million and  3.6 million additions in the first three quarters, respectively. Verizon benefited from the popularity of its “More Everything” plan offerings and superior network quality; T-Mobile benefited from its pioneering “Uncarrier” initiatives and cost effective plans.

On the other hand, Sprint reported negative subscriber gains in all three quarters this year. The third largest U.S. carrier paid the price for its troubled network upgrade program and less innovative plan offerings in a highly competitive market environment. This also resulted in the carrier reporting its highest retail postpaid churn rate in six years, at 2.2% (3Q 2014). With the network upgrade almost complete and its new CEO Marcelo Claure launching an aggressive price war with rivals on the back of its “Double The Data” and “Cut Your Bill In Half” offerings, Sprint might be able to improve its churn rate and return to positive adds by next year. However, it will not be easy considering its negative free cash flow situation, high debt and declining margins. This could be Sprint’s make-or-break year and it will have no option but to continue its aggressive offerings to grow its postpaid subscriber base. With carriers not leaving any stone unturned to compete for subscribers in this saturated market, it looks like 2015 is all set to be another exciting year for the U.S. wireless industry.

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Notes:
  1. AT&T Q3 2014 Earnings Transcript, Seeking Alpha, Oct 22 2014 []
  2. Presentation Q3 2014, AT&T, Oct 22 2014 []
  3. Q3 2014 Presentation, Verizon, Oct 21 2014 []