What to expect from US wireless carriers' Q4 results

The fourth quarter earnings season in the US is about to get underway, with AT&T, Verizon and T-Mobile all scheduled to report their latest financial results starting January 23. In general, analysts expect the good times will continue.

Indeed, all the big US wireless network operators have enjoyed positive attention from Wall Street in recent weeks. Since October 18, Verizon's shares today are up 29%, AT&T's shares are up 21%, and T-Mobile's shares are up 17%. In comparison, the S&P 500 is up just 10%.

The financial analysts at TD Cowen attributed the gains to a handful of factors, including trading rates and improving sentiments among shareholders.

However, the financial analysts at Morgan Stanley noted that operators' recent gains haven't fully offset the worries that dragged at much of 2023.

"While telco stocks rebounded nicely to end the year, they still lagged the broader market by over 20% in 2023 as competitive fears and lead sheathed cable concerns weighed on the sector earlier in the year," they wrote in a recent note to investors.

Further, most analysts agree that the most important item to watch in operators' upcoming fourth quarter earnings reports is what they have to say about this year. "Much of the focus will be on formal 2024 guidance," the Morgan Stanley analysts wrote.

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Here's what to look for in wireless carriers' Q4 reports:

Postpaid phone gains

Most analysts expect T-Mobile to continue to lead the pack in terms of net postpaid phone customer additions. That's important because postpaid phone customers are considered the most valuable type of wireless customer in the market.

TD Cowen predicts T-Mobile will report 860,000 such customers in the fourth quarter of 2023, followed by Charter Communications with 535,000, AT&T with 506,000, Comcast with 335,000 and Verizon with 230,000.

AT&T's CFO said late last year that the carrier is tracking toward around 500,000 postpaid phone net customer additions for the period. And Verizon officials have suggested the operator will soon reverse years of overall customer losses in its consumer business.

But analysts broadly expect the rate of new customer growth to slow in the US wireless industry. For example, the financial analysts at Evercore predict that overall industry wide postpaid phone net customer additions will fall to 8.6 million for all of 2023. That's down from 9.5 million in 2021 and 9.2 million in 2022.

"We continue to remain cautious in the longer-term sustainability of current levels of growth, and take a conservative approach to 2024 by modeling a slowdown to 7.3 million industry net adds (-1.3 million year over year) with 2025 getting back to more historical levels at 6.2 million," they wrote in a note to investors. "That said, the 3Q23 strength and encouraging commentary for 4Q23 seem to suggest the big drop-off in industry growth isn't lurking around in the very near-term and that there might be upside to our estimates."

FWA growth

Fixed wireless access (FWA) remains a key point of interest among investors. That's no surprise considering FWA services from T-Mobile and Verizon gobbled up much of the growth in the US home broadband market during 2023, partly at the expense of DSL and cable.

FWA "has turned out to have surprisingly sustainable consumer appeal, traction and stickiness," wrote the financial analysts at Evercore. They estimate that AT&T, T-Mobile and Verizon will continue to account for 80% to 90% of all broadband net additions in the US through 2024, ending that year with a grand total of 11.7 million FWA customers, combined.

For the fourth quarter, the analysts at Morgan Stanley predict AT&T will gain 88,000 FWA customers, Verizon to gain 404,000 and T-Mobile to gain 500,000.

The UScellular question

In August the parent company of UScellular, Telephone and Data Systems (TDS), announced it would "initiate a process to explore strategic alternatives for UScellular." Meaning, it would put UScellular's assets up for sale.

Since then various companies have expressed varying levels of interest in a possible matchup with the regional wireless network operator.

For example, T-Mobile CEO Mike Sievert said "maybe" when asked about his interest in acquiring UScellular. Similarly, one top Dish Network executive said the company would be interested in kicking the tires on UScellular.

Another possibility is an investment firm or a private equity player snapping up UScellular.

Either way, the financial analysts at TD Cowen expect some kind of update on the topic during operators' upcoming fourth quarter reports.