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5G and Beyond

US wireless bubble to deflate a little, but it hasn't popped yet

The financial analysts at Cowen now predict that the US wireless industry will grow by roughly 8.9 million postpaid phone customers during 2022. That figure indicates they believe the good times will mostly continue for AT&T, T-Mobile and – to a degree – Verizon.

That's noteworthy because some analysts at the beginning of 2022 warned that outsized growth in the US wireless industry during 2021 had created a "bubble." At the time, they warned that the bubble was on the verge of popping.

However, based on the Cowen predictions, that hasn't happened yet.

"We expect some long-awaited softening but still decent phone adds," the Cowen analysts wrote in a recent note to investors this week, just ahead of operators' second-quarter earnings reports. "Wireless should still outperform."

Cowen's analysts expect the US wireless industry collectively to grow by 8.9 million postpaid phone customers during 2022. That figure is down just slightly from the 9.6 million postpaid phone customers that US network operators overall reported throughout the course of 2021. The 2021 figure represented almost double the 6.5 million customers that operators added during 2020.

(Source: Philipp Dimitri / Westend61 GmbH / Alamy Stock Photo)
(Source: Philipp Dimitri / Westend61 GmbH / Alamy Stock Photo)

The Cowen analysts predicted that this year's growth won't be spread evenly across the industry.

Verizon stumbles

"On Verizon, we see downside risk near term given continued weakness in its consumer business despite more aggressive marketing/promos," the Cowen analysts warned investors.

Already Verizon reported the loss of 36,000 postpaid phone customers during its first quarter, whereas its big rivals T-Mobile and AT&T reported significant gains.

Verizon's management team recently cautioned that the operator isn't seeing any changes as it works through the second quarter. "As you think about what we're seeing there on the [customer] gross add side, it does temper our expectations for consumer volumes in the current quarter," Verizon CFO Matt Ellis said in May at an investor conference, according to a Verizon transcript of the event.

Officials from AT&T and T-Mobile are not offering that kind of cautious outlook for their own performances in the second quarter.

T-Mobile CEO Mike Sievert said in May that "the market is a little more buoyant than a year ago." He added that the operator is happy with its position in the market. Further, his comments came after T-Mobile raised its guidance for the remainder of 2022. The company said in April that it expects to gain between 5.3 million and 5.8 million postpaid net customer additions during 2022, up from previous expectations of 5 million to 5.5 million.

Similarly, AT&T officials haven't reported any slowdowns.

"Demand is very healthy," AT&T CFO Pascal Desroches said in June at an investor event, according to a Seeking Alpha transcript. "And as we said coming into this year, we didn't expect the same level of demand that we've seen the last couple of years. And as we sit here today, that I can tell you, demand remains very good."

Such comments are particularly noteworthy considering financial analysts in general warned earlier this year that customer growth in the US wireless industry was "too high" and would likely come down.

Inflation and recession

The Cowen predictions are particularly important in light of recent price hikes by US wireless network operators. AT&T, Verizon and T-Mobile have all increased their fees and service pricing in recent weeks, a reaction to rising inflation in the US. Already some network equipment vendors have sought to pass on rising component costs to their network operator customers.

Further, some network operator execs are warning that an economic recession is possible. That has stoked fears that Americans won't be able to afford pricey wireless service plans.

But the analysts at Cowen argue that wireless services remain an essential part of modern American life, a situation that somewhat insulates network operators from the wider fluctuations of the economy. "Wireless service is a utility-like necessity ... making wireless a 'less bad' industry as investors consider the weakening consumer," they wrote.

AT&T is scheduled to kick off the second-quarter earnings season on July 21.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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