Entries in Leap Wireless:LEAP (2)


Wireless Subscriber Trends in 3Q11: Big 3 Still Rule the Roost

And the Winner is…..AT&T Mobility

I have to hand it to AT&T…though Verizon Wireless is generally considered the “quality network” leader and was expected to start handing AT&T its hat once it obtained the iPhone last February, AT&T has fought back admirably and was in fact the top-growth company in the third quarter in terms of both gross and net subscriber additions. AT&T added 2.1m net new customers in the quarter, bringing its total to 100.7m. Churn was a respectable 1.28% and gross additions approached 6m.

Verizon Wireless, already the nation’s largest wireless service provider, added 1.4m net new customers; based on churn of 1.26% monthly, Verizon added almost 5.5m gross new customers. And Sprint Nextel, which continued to rail against AT&T’s planned acquisition of T-Mobile USA in the quarter, added just under 1.3m net new customers. T-Mobile USA hasn’t released its third quarter results yet, but based on comments in parent Deutsche Telekom’s third quarter report we know that T-Mo lost subs in the quarter. T-Mo’s revenue fell by 3.3% in the quarter YoY; since it also reported that growing data revenue led to an increase in average monthly ARPU, we can assume that subscribers fell by more than the 3.3% revenue decline.

And then there’s everyone else. The subscriber numbers are an order of magnitude smaller when we look at MetroPCS, Leap Wireless, U.S. Cellular…MetroPCS grew its base by a paltry 69k, blaming the slower growth on “seasonal factors” and the “weak economy.” Leap Wireless managed to add 10k net new customers which actually gave the stock a boost considering the big sub losses Leap had been reporting. And U.S. Cellular lost another 145k in the quarter, its biggest quarterly loss this year.

Notably, Clearwire added nearly 1.9m net new customers in the quarter. The vast majority of Clearwire’s customers are of course wholesale customers actually added by its estranged step-parent Sprint Nextel. In fact, it looks to me that without the Clearwire 4G sales, Sprint wouldn’t have grown its base at all in the quarter, though the details get murky. Sprint reported a modest decline in postpaid retail subscriber and boasted strong prepaid net adds, but ongoing losses from its Nextel/iDEN side of the business offset much of those gains. Sprint also said that results at its prepaid subsidiaries Virgin Mobile and Boost improved in the quarter.

So, AT&T and Verizon are (not surprisingly) dominant again, particularly in the postpaid segment. Sprint appears to be winning prepaid share, perhaps from T-Mo, but also from Leap and MetroPCS. Sprint’s release of the new iPhone 4s in mid-October, combined with its unlimited data plans, could help it fight back in terms of market share for post-paid customers in the fourth quarter. Remember that neither AT&T nor Verizon offer unlimited data plans any longer.

If we include Clearwire in the mix, AT&T, Clearwire, Verizon and Sprint accounted for 32%, 28.5%, 21.2% and 19.3% of the total net additions in our sample for the quarter—leaving the “also-rans” with negative market share. But considering that Clearwire’s subscribers are also Sprint subscribers, I took a look at market shares excluding Clearwire. In this scenario, AT&T grabbed nearly 45% of net adds; Verizon got just under 30% and Sprint garnered about 27%. Once again, the other public companies lost share to the big three.

I think the biggest takeaway from this exercise is the fact that AT&T continues to be VERY dominant in terms of wireless market share—which could make it tough to get court approval for the pending T-Mo buy. But with T-Mo losing subs, it’s still a mystery to me why AT&T even wants it. Of course, the substantial breakup fee that it will owe to DT is no doubt a factor, but, as I’ve written before, there are better ways for AT&T so spend $39b!


Wireless 2Q11 Results: The "Also Rans"

Stocks Tank on Market Share Miseries and Rising Costs

Last week I commented on the similarities in results and management comments regarding strategy between AT&T and Verizon.  Since then, all of the major wireless service providers, with the exception of United States Cellular, have reported their results. And to a one, the stocks in those publicly traded operators have since plummeted--between 25%-44%. Ouch!

Granted, it's a tough market out there in general this week (as I write this, the Dow Jones Industrial Average is down 300 points), but what really boggles my mind is, What were the Wall Street folks expecting? Is it really such a surprise that AT&T and Verizon added millions of customers while everyone else struggled?  Hello?

While executives from Sprint, MetroPCS, Leap Wireless and Clearwire have all tried to focus on how “their businesses are executing according to plan,” I don’t buy it—and obviously investors don’t either. They’re all working on improving margins, bulking up on their smartphone offerings, figuring out their LTE deployments, etc. But the bottom line is that Verizon and AT&T are running away with the market and they both reported record low churn levels in the second quarter. Their customers aren’t leaving.

Sprint, which was a turnaround story for most of the past three years, did manage to add more than a million new customers in the quarter—but they were lower value prepaid or wholesale customers. Sprint lost more than 100k of the more valuable postpaid contract customers.

Of the seven major wireless service providers who have already reported their second quarter results, Verizon and AT&T accounted for more than half of reported net additions—and if you consider that Sprint’s 1.1m net adds can largely be attributed to Clearwire’s 1.5m net adds, then those customers are actually double counted in my chart. Pull Clearwire out of the mix and the duopolists accounted for 75% of net adds reported to date.  And considering that United States Cellular has lost customers in each of the past four quarters, it’s unlikely that adding its results into the mix will change the overriding fact that the wireless market in the U.S. has become a clear duopoly.

The even bigger problem for the ‘also rans’, and what I believe investors are reacting so violently to, is the rapidly growing cost of providing data service to wireless customers.  Even AT&T and Verizon have acknowledged the problem by instituting tiered plans—it’s just too costly to provide unlimited data service over 3G, or even 4G, networks in the YouTube era. And it’s only going to get tougher. But AT&T and Verizon have the bulk and scale to weather the changing economics of the business.  Heavily leveraged MetroPCS, Leap and Clearwire may not. And Sprint is really just treading water…

Notably, I really don’t believe the pending merger between T-Mobile and AT&T changes much. Yes, it will make AT&T that much bigger, but T-Mobile has also been struggling to maintain its 33.6m subscriber base for some time.  It’s competing largely with Sprint and the smaller carriers for budget-conscious customers, while Verizon and AT&T dominate in the postpaid category.  So maybe AT&T does a little better in that category after (if) the deal closes—but maybe AT&T just increases its prices for the T-Mobile subscribers (in a slow, creeping manner).  That could actually be a good thing for Sprint/MetroPCS/Leap—but in the long run, those rising network costs combined with a falling net present value per subscriber may make the economics untenable.  It's 'back to the future' and the duopoly wireless business of 1984 is where we're headed.