The U.S. wireless telecommunications industry has been trending down over the past several quarters. The decline continued in the first quarter of 2017 results as well.
The domestic wireless industry continues to struggle with some major inherent headwinds like saturation issues, pricing competition, technological changes and marketing costs associated with any kind of promotional offers.
Let’s take a closer look at how these factors have impacted the industry negatively.
The U.S. wireless industry is already saturated, where spectrum crunch has become a major issue in the domestic telecom industry. Most of the carriers are finding it difficult to manage mobile data traffic, which is growing by leaps and bounds. The situation has become acute with the growing popularity of smartphones, online mobile video streaming, cloud computing and video conferencing services.
Apart from saturation issues, competition is becoming intense in the United States wireless postpaid and prepaid industry. The gap between prepaid and postpaid average revenue per user (ARPU) has narrowed significantly, forcing telecom biggies to turn their attention to domestic prepaid mobile service business.
Stiff pricing competition in the industry is a genuine concern. Few months back, we witnessed four major wireless telecommunications companies, Verizon Communications Inc. (VZ - Free Report) , AT&T Inc. (T - Free Report) , T-Mobile US Inc. (TMUS - Free Report) and Sprint Corp. (S - Free Report) , participating in the unlimited postpaid data plan war in order to remain competitive. These wireless operators are now extending their unlimited data plan to the prepaid market as well.
Two major national cable behemoths, Comcast Corp. (CMCSA - Free Report) and Charter Communications Inc. (CHTR - Free Report) have agreed to jointly work on their wireless services businesses so as to better explore their opportunities, accelerate and enhance each other’s ability to participate in the national wireless marketplace. Recently, Comcast completed the nationwide rollout of its wireless services under the Xfinity Mobile brand. Meanwhile, Charter Communications plans to offer wireless service in 2018. The wireless venture is also aimed at retaining customers in this competitive world. Satellite TV operator DISH Network Corp. (DISH - Free Report) , is also looking for wireless opportunities. It already has a strong portfolio of wireless spectrum.
Promotional Liquidity Woes
Additionally, the companies have been continuously trying to lure customers with attractive promotional plans and lucrative discounts, as a counteractive measure against the competition posed by other carriers. This has led to a high cash burn rate and heavy losses for these companies.
Price Performance: Jan - Jun, 2017
The downfall has been noticed in their price performances. Over the six months span from January-June 2017, the shares of Verizon, Sprint and AT&T have declined 16.3%, 2.5% and 11.3%, respectively while that of T-Mobile US soared 5.4%. When compared with the market at large, the stock’s performance looks miserable, as the S&P 500 index has rallied 9.3%.
Big Beat in Second-Quarter 2017
Financial results of the national wireless carriers for the quarter ended Jun 30, 2017, was a positive. We witness a stark improvement in terms of their revenue growth and subscriber statistics.
Let’s have a closer view on their prospects: -
Verizon reported an addition of 614,000 postpaid customers and 19,000 prepaid customers in the last reported second-quarter 2017, compared with a loss of 307,000 postpaid and 17,000 prepaid customers in the first quarter of 2017. Meanwhile, total revenue increased 0.1% year over year to $30,548 million.
AT&T had 136.500 million total subscribers, with 196,000 million postpaid wireless additions.
T-Mobile US’ innovative network expansion methodologies have lured 1.333 million net customers, signifying the 17th successive quarter of over 1 million net customer additions. The company’s total revenue jumped 10% year over year to $10,213 million in the reported quarter.
Sprint registered an impressive number of customer additions for the first quarter of fiscal 2017. As of Jun 30, 2017, Sprint had 53.698 million wireless connections (up 0.63% year over year), with net additions of 61,000 wireless customers. Quarterly total revenue amounted $8,157 million, up 1.81% year over year.
Notably, backed by such impressive subscriber additions and revenue growth, the management of all these four companies have raised their outlook for full-year 2017.
All the above-mentioned stocks carry a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance: Jul - Aug, 2017
We get to see a remarkable improvement in the price performances of the wireless carriers. Over these two months span from July-August 2017, the share price of Verizon, T-Mobile US, Sprint and AT&T has rallied 8.6%, 4.7%, 0.7% and 0.3%, respectively. When compared to the market at large, the stock’s performance looks favorable, as the S&P 500 index inched up 2.1%, over the same time span.
What to Expect in Second-Half of 2017?
On the back of such impressive financial results, we expect the trend to rise further in the coming quarters of 2017. This should likely have a positive influence in the second half of this year.
At present, the U.S. telecom industry enjoys several positive attributes. First, the new telecom regulatory body – Federal Communications Commission (FCC) – has given enough indications that it will be less stringent compared with the Obama administration and is likely to roll back several regulations of the previous regime. Second, the less restrictive nature of the FCC will aid mergers and acquisitions which are likely to spur growth in 2017. Third, a growing U.S. economy drives demand for real-time voice, data and video. This escalation in demand has encouraged telecom service providers to undertake large network extensions while upgrading plans.
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