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3 Big Themes to Watch for in Wireless Q2 Earnings

Mike Dano
7/22/2019
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The second-quarter earnings season is about to begin in earnest this week with AT&T scheduled to report its results Wednesday. Here are three big themes to keep an eye on as public companies report their results over the next few weeks.

1. Cable gains ground in wireless
Several analysts expect Comcast and Charter to increase their gains in the wireless industry. "We estimate US wireless carriers added 800k postpaid phones in 2Q19, down ~20% YoY, with cable operators capturing ~40% of that growth," wrote the Wall Street research analysts at Evercore in a recent note to investors.

Similarly, the analysts at Cowen predicted that Comcast will add 185,000 additional mobile customers in the second quarter, and for Charter to add 150,000.

Comcast kickstarted the cable industry's entry into mobile with the launch of its Xfinity Mobile service in 2017. Charter followed roughly a year later with its own Spectrum Mobile offering. Both piggyback on Verizon's LTE network, with the cable companies handling customer service, activation, billing and other functions, while Verizon's network provides the underlying connectivity.

And cable's overall incursion into the US wireless industry will likely gain further ground in the coming weeks when Altice launches its long-awaited MVNO service through Sprint. The company inked its MVNO agreement with Sprint in late 2017 and has promised to launch the offering sometime this summer.

However, despite predictions of continued gains, cable's performance in the US mobile industry hasn't quite lived up to some analysts' expectations.

2. Verizon, T-Mobile advance, while AT&T and Sprint fade
In the race to gain new subscribers in the second quarter, most analysts expect T-Mobile to again come out on top, and for Verizon to turn in a respectable performance. However, most Wall Street analysts expect AT&T to post relatively uninspiring customer numbers -- and for Sprint to report another mess of a quarter.

Specifically, the analysts at Wells Fargo predict T-Mobile will gain 627,000 net postpaid phone customer additions, while Verizon will clock in with around 180,000. Similarly, the analysts at Cowen expect T-Mobile to net 636,000 postpaid phone customers and Verizon to report 168,000. Postpaid wireless phone customers -- those who pay for their phone bill after receiving service -- are often the most valuable in terms of average revenue per user.

But for AT&T, Wells Fargo predicts just 30,000 net postpaid phone additions, while Cowen expects AT&T to lose 33,000 such customers. "Our checks suggest AT&T pulled back modestly in Q2," wrote the analysts at Wells Fargo, adding that "we expect a larger focus on profitability, with margins expanding sequentially due to lower promotional intensity."

As for Sprint, Wells Fargo expects the operator to lose fully 210,000 postpaid phone customers, while the analysts at Cowen believe that number will be 156,000 in losses. Sprint continues to suffer declines in its customer base amid concerns it simply can't compete with AT&T and Verizon on a nationwide basis.

3. M&A overshadows everything
While operators prepare to release their quarterly results, hanging over both their short- and long-term strategies is the effect that the merger of Sprint and T-Mobile might have on the overall US wireless market.

According to the latest rumors, the Department of Justice is forcing Sprint and T-Mobile to put the final touches on their reworked merger proposal this week. That proposal could include the offloading of customers, spectrum and wholesale access to Dish Network.

If the companies do indeed reach this kind of agreement with Dish, there would be major ramifications for virtually every company in the entire space, from wireless network equipment vendors like Ericsson to tower companies like SBA Communications to cable companies like Comcast. In the case of equipment vendors, they might see Dish as a major new customer; the same would be true of tower companies. And for cable companies, they might view the entry of Dish into the wireless industry as a cause for competitive concern -- or potentially as an acquisition target.

But if T-Mobile's merger attempt with Sprint ultimately collapses, that too would have major implications, including setting up the stage for another company to snap up Sprint.

Either way, the Sprint/T-Mobile merger likely will factor heavily into Q2 commentary.

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

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