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/

1. Jan Dawson
Chief Analyst
(408) 744-6244
jan@jackdawresearch.com
@jandawson
US wireless market
trends for Q1 2014

2. 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

3. Contents
• Financials - revenues, profitability, capital intensity
• Subscribers - total subs, net adds, churn
• Device trends - subsidies, penetration
• Conclusions

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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)

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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.

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

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