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Despite subscriber additions, carriers face growth questions

By
July 21, 2014
WirelessSubRevenueProfit

As this site discussed earlier today, T-Mobile is expected to continue their reign as the “fastest-growing” carrier once Q2 results are released later this month.

Now, the Wall Street Journal notes that although analysts expect all major carriers (except Sprint) to continue overall net additions of postpaid subscribers (which usually leads to higher earnings and better margins) in the Q2, there are also a number of questions marks about the near future of the major wireless carriers.

Even with those additions, Verizon did not see their earnings rise after interest, taxes (well, if they pay any), depreciation and amortization. In fact, margins for major four carriers rose just 1.3 percentage point during the last quarter, even as average revenue per postpaid user fell 3.4% year over year.

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As the Wall Street Journal states, “while the new plans boost revenue and margins since a portion of revenue is booked upfront, those benefits will likely be offset by service discounts and higher retention costs.”

AT&T did just that by booking revenue upfront to hide the fact that the effect that lower prices had on their recent bottom line. Verizon and T-Mobile did not have this issue because of lower adoption rates.

T-Mobile has been a significant pain to AT&T who has countered a number of T-Mobile’s policies and lowered their prices to match T-Mobile. Verizon, on the other hand, have mostly stayed out of the price wars for a variety of reasons ranging from their network stability/size to fears from Wall Street about Verizon spending a bit too much money on customers.

“Verizon expects only 30% of smartphones acquired by customers to be leased in Q2 compared to over 50% at AT&T,” said BTIG analyst Walter Piecyk. “While we expect that mix to rise to 50% over time, the slower adoption at Verizon should help the company to limit ARPU declines and deliver service revenue growth in the low- to mid-single digits while AT&T suffers from a more than 5% contraction in service revenue later this year.” – FierceWireless