Q3 wireless takeaways: Phone sales low, customer growth high

The third quarter earnings season is slowly winding down, but there are a few major developments that have become clear in the wake of reports from AT&T, T-Mobile, Verizon and others.

Perhaps the most noteworthy item is the surprising growth recorded by 5G providers overall. For example, the financial analysts at TD Cowen noted that the industry collectively added a total of 2.32 million postpaid phone customers, a figure ahead of general expectations of around 2.23 million. "Wireless phone [customer] adds continue to deliver outperformance and resilience," they wrote in a recent report.

Other noteworthy topics include sluggish sales of new phones, slightly muted growth among cable MVNOs, and ongoing progress among fixed wireless Internet providers.

One final upshot: Shares in T-Mobile, AT&T and Verizon all enjoyed a bounce following their earnings reports.

"Telcos back in vogue again?" was the title of one short note from the financial analysts at Wells Fargo issued Sunday.

They explained: "The wireless carrier stocks have lately been holding up reasonably well in the recent market turbulence (up ~2% the past month vs. S&P -4%). There were some signs of optimism in recent earnings reports as we look ahead to 2024. Postpaid phone net adds across the Big 3 were up ~30% sequentially despite a softer switching pool across the industry (while Charter/Comcast net phone adds were down 8% sequentially)."

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

A few companies, including Dish Network, Altice and UScellular, have not yet reported their third quarter results

A bubble that won't pop

Analysts for years now have been warning that the outsized growth in the US wireless industry will come to an end, at some point. And indeed there have been signs that 5G providers are accumulating fewer total customers than their heyday in 2021, when they collectively gained a total of almost 10 million new postpaid phone customers – that was almost double the 6.5 million customers operators added during 2020.

Moreover, carrier executives including those at AT&T agreed earlier this year that growth would slow over the course of 2023. But so far that's not really happening.

"It's turned out to be more resilient than a lot of people predicted," T-Mobile CEO Mike Sievert said during his company's Q3 call, according to Seeking Alpha.

He attributed the ongoing growth in the space to a variety of trends, including business customers with two lines of service, prepaid customers migrating to postpaid plans and cable companies signing up customers with free lines of service.

Related:The latest 5G innovation: Even more price increases

That growth is also happening as all of the nation's big wireless providers raise prices and fees.

"Ultimately, wireless remains fairly recession resistant from both a stock and operational perspective," concluded the analysts at TD Cowen.

Allergies to new phones

"Customers are holding on to their phones longer," Verizon CFO Tony Skiadas told the Wall Street Journal. "I don't think that's going to change."

According to the publication, T-Mobile's postpaid device upgrade rate fell to 2.7% during the third quarter. Similarly, AT&T's hit 3.9% while Verizon's was 3.4%. Two years ago, that replacement rate was more than 4%.

"The devices, frankly, from generation-to-generation change a little bit less," agreed AT&T CEO John Stankey during his company's quarterly conference call. 

The situation will likely put strain on Apple's iPhone business in North America, according to the financial analysts at KeyBanc Capital Markets. They noted that US iPhone upgrade rates were near historic lows in the third quarter.

But research firm IDC found that Apple's global shipments grew in every region but China in the third quarter, according to the WSJ. The IDC analysts said that's due to operators' generous iPhone promotions and financing options. Indeed, T-Mobile last week announced a new four-line family plan for $100 per month that offers four new iPhones to customers who trade in their existing devices. Separately, Verizon appears to be offering a free Apple TV device with the purchase of a new iPhone.

Stumbles among cable MVNOs

For more than a year now, cable companies like Cox Communications, Charter Communications and Comcast have been blowing past most analyst expectations with their mobile customer gains. But that seemed to falter in the third quarter.

"Cable struggles to still find the new normal," noted the TD Cowen analysts, while the Wells Fargo analysts wrote that Charter and Comcast combined reported net phone customer additions that were down 8% compared with the second quarter.

Charter – the nation's leading cable MVNO with 7.22 million total mobile lines – notched 577,000 new mobile lines in the third quarter versus most analyst expectations of roughly 600,000.

However: "Cable is still eating away at industry subscriber share," noted the Wells Fargo analysts.

Fixed wireless levels off

As many had expected, Verizon and T-Mobile reported roughly the same number of new fixed wireless access (FWA) customers in the third quarter as they did in the second quarter. Meaning, they appear to have reached the peak of their growth curve.

Nonetheless, that's still an impressive performance. The analysts at Tefficient noted on social media that so far 90% of overall US broadband net customer additions in the third quarter were FWA, while only 10% were fiber or cable. "Price matters. Much," they wrote.

The financial analysts at New Street Research looked at preliminary numbers for the US broadband market in the third quarter and concluded that the overall residential broadband market in the US grew by 675,000 subscribers. Meanwhile, T-Mobile and Verizon added an estimated 690,000 residential customers to their FWA offerings. The offset was due to losses among cable and DSL providers.

They also concluded that cable providers continue to lose share of the broadband market when the analysts combine FWA with the fixed broadband products from telco operators like Verizon, AT&T and others. "This is the eighth quarter in a row where cable has convincingly lost share," they wrote.