Post on 08-Sep-2014
description
Jan Dawson Chief Analyst
(408) 744-6244 jan@jackdawresearch.com
@jandawson
US wireless market trends for Q1 2014
Contents
• Financials - revenues, profitability, capital intensity
• Subscribers - total subs, net adds, churn
• Device trends - subsidies, penetration
• Conclusions
Wireless revenues
0
10,000
20,000
30,000
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T Sprint T-Mobile Tracfone Verizon
Source: Company reporting, Jackdaw Research analysis
Revenue growth
Source: Company reporting, Jackdaw Research analysis
Year on year wireless revenue growth
-10%
0%
10%
20%
30%
40%
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T Sprint T-Mobile TracfoneVerizon
EBITDA margins
Source: Company reporting, Jackdaw Research analysis
0%
10%
20%
30%
40%
50%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T Sprint T-Mobile Tracfone Verizon
Operating margins
Source: Company reporting, Jackdaw Research analysis
-10%
0%
10%
20%
30%
40%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T Sprint T-Mobile Tracfone Verizon
Capital intensity
Source: Company reporting, Jackdaw Research analysis
Wireless capital intensity
0%
10%
20%
30%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T Sprint T-Mobile Verizon
Total subscribers
Source: Company reporting, Jackdaw Research analysis
0
30,000
60,000
90,000
120,000
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T Sprint T-Mobile Tracfone Verizon (retail only)
Subscriber breakdown
Source: Company reporting, Jackdaw Research analysis
0
30,000
60,000
90,000
120,000
AT&T Sprint T-Mobile Tracfone Verizon
Postpaid Prepaid Connected Wholesale
Total net adds
Source: Company reporting, Jackdaw Research analysis
-3,000
-2,000
-1,000
0
1,000
2,000
3,000
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T Sprint T-Mobile Tracfone Verizon
Net add breakdown
Source: Company reporting, Jackdaw Research analysis
Net add breakdown for Q1 2014
-1,000
0
1,000
2,000
3,000
AT&T Sprint T-Mobile Tracfone Verizon
Postpaid Prepaid Connected Wholesale
Net adds by device
Source: Company reporting, Jackdaw Research analysis
Postpaid net adds by device type
-1,000
-500
0
500
1,000
1,500
AT&T Sprint T-Mobile Verizon Wireless
Phone Tablet
Note: Sprint and Verizon phone net adds are derived from total postpaid net adds and tablet net adds. Verizon added 866k 4G smartphone net adds in the quarter but lost significant 3G and feature phones
Churn - postpaid
Source: Company reporting, Jackdaw Research analysis
0%
1%
2%
3%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T Sprint T-Mobile Verizon
Churn - prepaid
Source: Company reporting, Jackdaw Research analysis
0%
2%
4%
6%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
Sprint T-Mobile Tracfone
Gross adds vs losses
Source: Company reporting, Jackdaw Research analysis
AT&T gained vs. lost subscribers
0
500
1,000
1,500
2,000
2,500
3,000
3,500
Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
Lost Gained
Gross adds vs losses
Source: Company reporting, Jackdaw Research analysis
Sprint gained vs. lost subscribers
0
1,000
2,000
3,000
Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
Lost Gained
Gross adds vs losses
Source: Company reporting, Jackdaw Research analysis
T-Mobile gained vs. lost subscribers
0
500
1,000
1,500
2,000
2,500
Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
Lost Gained
Gross adds vs losses
Source: Company reporting, Jackdaw Research analysis
Tracfone gained vs. lost subscribers
0
1,000
2,000
3,000
4,000
5,000
Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
Lost Gained
Gross adds vs losses
Source: Company reporting, Jackdaw Research analysis
Verizon Wireless gained vs. lost subscribers
0
1,000
2,000
3,000
4,000
5,000
Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
Lost Gained
ARPU - postpaid
Source: Company reporting, Jackdaw Research analysis
$50
$55
$60
$65
$70
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T SprintT-Mobile Verizon (ARPA/connections per account)T-Mobile ABPU
Verizon doesn’t report ARPU so we use a calculation which is roughly but not entirely equivalent. T-Mobile ARPU doesn’t include equipment payments so we’ve included a second metric - average billings per user
ARPU - prepaid
Source: Company reporting, Jackdaw Research analysis
$0
$10
$20
$30
$40
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
Sprint T-Mobile Tracfone
Smartphone sales
Source: Company reporting, Jackdaw Research analysis
% of postpaid phone sales that were smartphones
60%
70%
80%
90%
100%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T Sprint T-Mobile Verizon
Smartphone sales
Source: Company reporting, Jackdaw Research analysis
Number of smartphones sold (m)
0
3
6
9
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T Sprint T-Mobile Verizon
Smartphone penetration
Source: Company reporting, Jackdaw Research analysis
% of postpaid base on smartphones
0%
30%
60%
90%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T Sprint T-Mobile Verizon
Smartphone upgrades
Source: Company reporting, Jackdaw Research analysis
% of base upgrading in quarter
0%
2%
4%
6%
8%
10%
12%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T Sprint T-Mobile Verizon
Note: Sprint and T-Mobile had identical numbers in Q4 2013 and Q1 2014. Hence, the lines representing them in the chart overlap each other during those two quarters.
Equipment revenue
Source: Company reporting, Jackdaw Research analysis
0
750
1,500
2,250
3,000
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
AT&T Sprint T-Mobile Tracfone Verizon
Sprint data
Source: Company reporting, Jackdaw Research analysis
0
500
1,000
1,500
2,000
0%
10%
20%
30%
40%
50%
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014
Percent of hardware cost covered by revenue Wireless subsidy
T-Mobile data
Source: Company reporting, Jackdaw Research analysis
0
350
700
1,050
1,400
0%
30%
60%
90%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014
Value & Simple Choice as % of postpaid baseEquipment sales revenues financed on EIPEquipment sales revenue % on EIP
Conclusions• Carriers have an increasingly diverse mix of net adds
• Only T-Mobile had a significant number of postpaid phone net adds
• Tracfone dominates prepaid net adds
• AT&T dominates connected device net adds
• Sprint and T-Mobile share wholesale net adds
• Verizon really struggled this quarter in postpaid
Conclusions• Subsidy shifts are having a major impact already
• Only Sprint and T-Mobile have been really transparent about these changes
• T-Mobile has seen the vast majority of purchasing shift to equipment installment plans (86%)
• Sprint has seen subsidy reduce by 70% year on year
• AT&T is starting to change reporting to account for subsidy payments and 40% of gross adds/upgrades were on NEXT
Conclusions• T-Mobile’s efforts are really paying off - significant growth in
subscribers compared to other carriers
• However, it is coming at a significant cost in margins - EBITDA and operating margins both down significantly over the past few quarters
• TMO had the highest growth and lowest operating margins of any of the big five operators in Q1 2014
• Verizon and AT&T continue to be significantly more profitable than the others, Sprint continues to languish
Conclusions• T-Mobile’s efforts are really paying off - significant growth in
subscribers compared to other carriers
• However, it is coming at a significant cost in margins - EBITDA and operating margins both down significantly over the past few quarters
• TMO had the highest growth and lowest operating margins of any of the big five operators in Q1 2014
• Verizon and AT&T continue to be significantly more profitable than the others, Sprint continues to languish
Conclusions• T-Mobile’s gross adds have really taken off, and churn has come
down - twin keys to net add growth
• Tracfone had the highest gross adds in Q1 2014 - but also the highest overall churn
• Even at their low churn rates, AT&T and Verizon’s scale means they have to generate significantly higher gross adds to match net adds of T-Mobile
• Verizon quickly began addressing issues that caused losses of 3G and feature phone customers, meaning churn and net adds should rebound in Q2 2014
Conclusions• Capex spiked for both T-Mobile and Sprint in
2014, to well above 15%, but both are settling down again now
• AT&T’s capital intensity is consistently higher than Verizon’s
• Sprint’s dipped in Q1 2014 but should increase later on in the year according to its guidance
Jan Dawson Chief Analyst
(408) 744-6244 jan@jackdawresearch.com
@jandawson
Thank you