US Wireless Market Trends Q1 2014
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US Wireless Market Trends Q1 2014

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A run-through of numbers from the five major US wireless operators - AT&T, Sprint, T-Mobile, Tracfone and Verizon Wireless. Revenues, margins, capital intensity, ARPU, churn, net adds, total ...

A run-through of numbers from the five major US wireless operators - AT&T, Sprint, T-Mobile, Tracfone and Verizon Wireless. Revenues, margins, capital intensity, ARPU, churn, net adds, total subscribers, smartphone related data. A related blog post can be found at http://www.beyonddevic.es/2014/05/01/us-wireless-market-analysis-q1-2014/

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    US Wireless Market Trends Q1 2014 US Wireless Market Trends Q1 2014 Presentation Transcript

    • Jan Dawson Chief Analyst (408) 744-6244 jan@jackdawresearch.com @jandawson US wireless market trends for Q1 2014
    • Introduction • I’m making this slide deck available as a public service • I have yet to decide whether to do this quarterly for free or to make it part of my paid offering • Journalists and bloggers are welcome to embed the deck from Slideshare • They are also free to use individual slides / graphics with attribution and links - contact me for high res versions • Feedback welcome
    • Contents • Financials - revenues, profitability, capital intensity • Subscribers - total subs, net adds, churn • Device trends - subsidies, penetration • Conclusions
    • Wireless revenues 0 10,000 20,000 30,000 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Tracfone Verizon Source: Company reporting, Jackdaw Research analysis
    • Revenue growth Source: Company reporting, Jackdaw Research analysis Year on year wireless revenue growth -10% 0% 10% 20% 30% 40% Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Tracfone Verizon
    • EBITDA margins Source: Company reporting, Jackdaw Research analysis 0% 10% 20% 30% 40% 50% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Tracfone Verizon
    • Operating margins Source: Company reporting, Jackdaw Research analysis -10% 0% 10% 20% 30% 40% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Tracfone Verizon
    • Capital intensity Source: Company reporting, Jackdaw Research analysis Wireless capital intensity 0% 10% 20% 30% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Verizon
    • Total subscribers Source: Company reporting, Jackdaw Research analysis 0 30,000 60,000 90,000 120,000 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Tracfone Verizon (retail only)
    • Subscriber breakdown Source: Company reporting, Jackdaw Research analysis 0 30,000 60,000 90,000 120,000 AT&T Sprint T-Mobile Tracfone Verizon Postpaid Prepaid Connected Wholesale
    • Total net adds Source: Company reporting, Jackdaw Research analysis -3,000 -2,000 -1,000 0 1,000 2,000 3,000 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Tracfone Verizon
    • Net add breakdown Source: Company reporting, Jackdaw Research analysis Net add breakdown for Q1 2014 -1,000 0 1,000 2,000 3,000 AT&T Sprint T-Mobile Tracfone Verizon Postpaid Prepaid Connected Wholesale
    • Net adds by device Source: Company reporting, Jackdaw Research analysis Postpaid net adds by device type -1,000 -500 0 500 1,000 1,500 AT&T Sprint T-Mobile Verizon Wireless Phone Tablet Note: Sprint and Verizon phone net adds are derived from total postpaid net adds and tablet net adds. Verizon added 866k 4G smartphone net adds in the quarter but lost significant 3G and feature phones
    • Churn - postpaid Source: Company reporting, Jackdaw Research analysis 0% 1% 2% 3% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Verizon
    • Churn - prepaid Source: Company reporting, Jackdaw Research analysis 0% 2% 4% 6% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Sprint T-Mobile Tracfone
    • Gross adds vs losses Source: Company reporting, Jackdaw Research analysis AT&T gained vs. lost subscribers 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Lost Gained
    • Gross adds vs losses Source: Company reporting, Jackdaw Research analysis Sprint gained vs. lost subscribers 0 1,000 2,000 3,000 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Lost Gained
    • Gross adds vs losses Source: Company reporting, Jackdaw Research analysis T-Mobile gained vs. lost subscribers 0 500 1,000 1,500 2,000 2,500 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Lost Gained
    • Gross adds vs losses Source: Company reporting, Jackdaw Research analysis Tracfone gained vs. lost subscribers 0 1,000 2,000 3,000 4,000 5,000 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Lost Gained
    • Gross adds vs losses Source: Company reporting, Jackdaw Research analysis Verizon Wireless gained vs. lost subscribers 0 1,000 2,000 3,000 4,000 5,000 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Lost Gained
    • ARPU - postpaid Source: Company reporting, Jackdaw Research analysis $50 $55 $60 $65 $70 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Verizon (ARPA/connections per account) T-Mobile ABPU Verizon doesn’t report ARPU so we use a calculation which is roughly but not entirely equivalent. T-Mobile ARPU doesn’t include equipment payments so we’ve included a second metric - average billings per user
    • ARPU - prepaid Source: Company reporting, Jackdaw Research analysis $0 $10 $20 $30 $40 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Sprint T-Mobile Tracfone
    • Smartphone sales Source: Company reporting, Jackdaw Research analysis % of postpaid phone sales that were smartphones 60% 70% 80% 90% 100% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Verizon
    • Smartphone sales Source: Company reporting, Jackdaw Research analysis Number of smartphones sold (m) 0 3 6 9 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Verizon
    • Smartphone penetration Source: Company reporting, Jackdaw Research analysis % of postpaid base on smartphones 0% 30% 60% 90% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Verizon
    • Smartphone upgrades Source: Company reporting, Jackdaw Research analysis % of base upgrading in quarter 0% 2% 4% 6% 8% 10% 12% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Verizon Note: Sprint and T-Mobile had identical numbers in Q4 2013 and Q1 2014. Hence, the lines representing them in the chart overlap each other during those two quarters.
    • Equipment revenue Source: Company reporting, Jackdaw Research analysis 0 750 1,500 2,250 3,000 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 AT&T Sprint T-Mobile Tracfone Verizon
    • Sprint data Source: Company reporting, Jackdaw Research analysis 0 500 1,000 1,500 2,000 0% 10% 20% 30% 40% 50% Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Percent of hardware cost covered by revenue Wireless subsidy
    • T-Mobile data Source: Company reporting, Jackdaw Research analysis 0 350 700 1,050 1,400 0% 30% 60% 90% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Value & Simple Choice as % of postpaid base Equipment sales revenues financed on EIP Equipment sales revenue % on EIP
    • Conclusions • Carriers have an increasingly diverse mix of net adds • Only T-Mobile had a significant number of postpaid phone net adds • Tracfone dominates prepaid net adds • AT&T dominates connected device net adds • Sprint and T-Mobile share wholesale net adds • Verizon really struggled this quarter in postpaid
    • Conclusions • Subsidy shifts are having a major impact already • Only Sprint and T-Mobile have been really transparent about these changes • T-Mobile has seen the vast majority of purchasing shift to equipment installment plans (86%) • Sprint has seen subsidy reduce by 70% year on year • AT&T is starting to change reporting to account for subsidy payments and 40% of gross adds/upgrades were on NEXT
    • Conclusions • T-Mobile’s efforts are really paying off - significant growth in subscribers compared to other carriers • However, it is coming at a significant cost in margins - EBITDA and operating margins both down significantly over the past few quarters • TMO had the highest growth and lowest operating margins of any of the big five operators in Q1 2014 • Verizon and AT&T continue to be significantly more profitable than the others, Sprint continues to languish
    • Conclusions • T-Mobile’s efforts are really paying off - significant growth in subscribers compared to other carriers • However, it is coming at a significant cost in margins - EBITDA and operating margins both down significantly over the past few quarters • TMO had the highest growth and lowest operating margins of any of the big five operators in Q1 2014 • Verizon and AT&T continue to be significantly more profitable than the others, Sprint continues to languish
    • Conclusions • T-Mobile’s gross adds have really taken off, and churn has come down - twin keys to net add growth • Tracfone had the highest gross adds in Q1 2014 - but also the highest overall churn • Even at their low churn rates, AT&T and Verizon’s scale means they have to generate significantly higher gross adds to match net adds of T-Mobile • Verizon quickly began addressing issues that caused losses of 3G and feature phone customers, meaning churn and net adds should rebound in Q2 2014
    • Conclusions • Capex spiked for both T-Mobile and Sprint in 2014, to well above 15%, but both are settling down again now • AT&T’s capital intensity is consistently higher than Verizon’s • Sprint’s dipped in Q1 2014 but should increase later on in the year according to its guidance
    • Jan Dawson Chief Analyst (408) 744-6244 jan@jackdawresearch.com @jandawson Thank you