An overview of trends in the US wireless market in Q2 2014, covering AT&T, Sprint, T-Mobile, Tracfone and Verizon Wireless. Includes analysis of financials, subscribers, net adds, ARPU and churn. Also, the impact of device installment billing on both the carriers and OEMs. Analysis of the content in this deck is available here: http://www.beyonddevic.es/2014/08/12/analysis-of-q2-2014-us-wireless-market/

1. Jan Dawson
Chief Analyst
(408) 744-6244
jan@jackdawresearch.com
@jandawson
US wireless market
trends for Q2 2014

2. Introduction
• I’m making this slide deck available as a public service
• The previous quarter’s deck is available at: http://www.slideshare.net/
JanDawson2/us-wireless-market-trends-q1-2014
• Analysis accompanying this deck is at:
http://www.beyonddevic.es/2014/08/11/analysis-of-q2-2014-us-wireless-
market
• Journalists and bloggers are welcome to embed the deck from Slideshare
and are also free to use individual slides / graphics with attribution and links
- contact me for high res versions
• This deck forms part of the Jackdaw Research subscription research service
- for more information see http://jackdawresearch.com/services/
2

3. Contents
• Financials - revenues, profitability, capital intensity
• Subscribers - total subs, net adds, churn
• Device trends - subsidies, penetration
Unlike last quarter, this deck doesn’t include analysis
- for that, please see http://www.beyonddevic.es/
2014/08/11/analysis-of-q2-2014-us-wireless-market
3

4. Wireless revenues
4
Source: Company reporting, Jackdaw Research analysis
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 Q2 2014
AT&T Sprint T-Mobile Tracfone Verizon

5. Revenue growth
5
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 Q2 2014
AT&T Sprint T-Mobile Tracfone Verizon

6. EBITDA margins
6
Source: Company reporting, Jackdaw Research analysis
Wireless EBITDA margins
0%
10%
20%
30%
40%
50%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
AT&T Sprint T-Mobile Tracfone Verizon

7. Operating margins
7
Source: Company reporting, Jackdaw Research analysis
Wireless operating margins
-10%
0%
10%
20%
30%
40%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
AT&T Sprint T-Mobile Tracfone Verizon

8. Capital intensity
8
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 Q2 2014
AT&T Sprint T-Mobile Verizon

9. Total subscribers
9
Source: Company reporting, Jackdaw Research analysis
Total subscribers
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 Q2 2014
AT&T Sprint T-Mobile Tracfone Verizon (retail only)

10. Total subscriber breakdown, Q2 2014
0
30,000
60,000
90,000
120,000
Postpaid Prepaid Connected Wholesale
Subscriber breakdown
10
Source: Company reporting, Jackdaw Research analysis
Note: Verizon doesn’t report wholesale or connected
devices (M2M) subscribers. In addition, since Sprint
reports its connected devices subscribers as part of its
retail postpaid and wholesale subscribers, but also
reports these separately, we have broken them out and
subtracted them from the postpaid and wholesale
subscriber totals

11. Total net adds
11
Source: Company reporting, Jackdaw Research analysis
Wireless net adds
-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 Q2 2014
AT&T Sprint T-Mobile Tracfone Verizon

12. Net add breakdown
12
Source: Company reporting, Jackdaw Research analysis
Net add breakdown for Q2 2014
-1,000
-500
0
500
1,000
1,500
2,000
AT&T Sprint T-Mobile Tracfone Verizon
Postpaid Prepaid Connected Wholesale
Note: since Sprint reports its connected devices
subscribers as part of its retail postpaid and wholesale
subscribers, but also reports these separately, we have
broken them out and subtracted them from the
postpaid and wholesale subscriber totals

13. Postpaid net adds by device type
-1,000
-500
0
500
1,000
1,500
AT&T Sprint T-Mobile Verizon Wireless
Postpaid phone net adds Postpaid tablet net adds
Net adds by device
13
Source: Company reporting, Jackdaw Research analysis
Note: Verizon added 1 million
4G smartphones, but lost about
700,000 feature phones and 3G
smartphones

14. Churn – postpaid
14
Source: Company reporting, Jackdaw Research analysis
Postpaid churn
0%
1%
2%
3%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
AT&T Sprint T-Mobile Verizon

15. Churn – prepaid
15
Source: Company reporting, Jackdaw Research analysis
Prepaid churn
0%
2%
4%
6%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
Sprint T-Mobile Tracfone

16. Losses implied by churn
16
Source: Company reporting, Jackdaw Research analysis
Estimated posptaid subscriber losses, based on postpaid churn rates, 000s
0
1,000
2,000
3,000
4,000
Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
AT&T Sprint T-Mobile Verizon

17. Gross adds
17
Source: Company reporting, Jackdaw Research analysis
Estimated postpaid gross adds, based on churn and net adds, 000s
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 Q2 2014
AT&T Sprint T-Mobile Verizon

18. Gross adds vs losses
18
Source: Company reporting, Jackdaw Research analysis
AT&T gained vs. lost postpaid 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 Q2 2014
Lost Gained

19. Gross adds vs losses
19
Source: Company reporting, Jackdaw Research analysis
Sprint gained vs. lost postpaid subscribers
0
1,000
2,000
3,000
Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
Lost Gained

20. Gross adds vs losses
20
Source: Company reporting, Jackdaw Research analysis
T-Mobile gained vs. lost postpaid 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 Q2 2014
Lost Gained

21. Gross adds vs losses
21
Source: Company reporting, Jackdaw Research analysis
Tracfone gained vs. lost prepaid 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 Q2 2014
Lost Gained

22. Gross adds vs losses
22
Source: Company reporting, Jackdaw Research analysis
Verizon Wireless gained vs. lost postpaid 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 Q2 2014
Lost Gained

23. ARPU – postpaid
23
Source: Company reporting, Jackdaw Research analysis
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
$50
$55
$60
$65
$70
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
AT&T (postpaid phone-only ARPU) Sprint T-Mobile
Verizon (ARPA/connections per account) T-Mobile ABPU

24. ARPU – postpaid
24
Source: Company reporting, Jackdaw Research analysis
AT&T ARPU - various measures
$58
$60
$62
$64
$66
$68
$70
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
Postpaid subscriber ARPU Postpaid phone-only ARPU
Postpaid phone-only plus Next Derived Postpaid subscriber ARPU
This chart is included to demonstrate the wide range of
ARPU figures carriers now report, and those they’ve
reported in the past. The yellow line represents the best
indicator for AT&T going forward, as it includes Next
payments, and is roughly equivalent to T-Mobile’s ABPU
measure. It should rebound in the next few quarters

25. ARPU - prepaid
25
Source: Company reporting, Jackdaw Research analysis
ARPU – prepaid
$0
$10
$20
$30
$40
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
Sprint T-Mobile Tracfone

26. Smartphone sales
26
Source: Company reporting, Jackdaw Research analysis
% of postpaid sales that were smartphones
60%
70%
80%
90%
100%
Q1 2012Q2 2012Q3 2012Q4 2012Q1 2013Q2 2013Q3 2013Q4 2013Q1 2014Q2 2014
AT&T Sprint T-Mobile Verizon

27. Smartphone sales
27
Source: Company reporting, Jackdaw Research analysis
Number of smartphones sold (m)
0
1
2
3
4
5
6
7
8
9
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
AT&T Sprint T-Mobile Verizon

28. Smartphone penetration
28
Source: Company reporting, Jackdaw Research analysis
% of postpaid base on smartphones
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
AT&T Sprint T-Mobile Verizon

29. Smartphone upgrades
29
Source: Company reporting, Jackdaw Research analysis
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.
% 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 Q2 2014
AT&T Sprint T-Mobile Verizon

30. Equipment revenue
30
Source: Company reporting, Jackdaw Research analysis
Wireless equipment revenues
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 Q2 2014
AT&T Sprint T-Mobile Tracfone Verizon

31. Subsidies – Sprint data
31
Source: Company reporting, Jackdaw Research analysis
0
500
1,000
1,500
2,000
0%
10%
20%
30%
40%
50%
60%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
Percent of hardware cost covered by revenue Wireless subsidy

32. Subsidies – T-Mobile data
32
Source: Company reporting, Jackdaw Research analysis
0
500
1,000
1,500
0%
30%
60%
90%
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
Value & Simple Choice as % of postpaid base
Equipment sales revenues financed on EIP
Equipment sales revenue % on EIP

33. Jan Dawson
Chief Analyst
(408) 744-6244
jan@jackdawresearch.com
@jandawson
Thank you