Wireless Industry: Engaged in Double Counting?
Could the U.S. wireless industry have just entered a period of continuous losses of subscribers who are on long-term contracts? Sanford C. Bernstein analyst Craig Moffett argues that’s indeed the case.
In today’s report, Moffett estimates that carriers like Sprint Nextel and others haven’t yet recognized some 450,000 post-paid (or under-contract) subscribers who fled their services for cheaper, prepaid offerings from carriers like Leap and Boost, a subsidiary of Sprint’s, in the first quarter alone. Some of these subscribers will appear on financial statements as losses in the second, and some — in the third quarter. So while, based on current results, the U.S. wireless industry’s post-paid subscriber numbers appear to have risen 7% in the first quarter year-over-year, they’ve actually fallen 13%, Moffett estimates.
For the wireless industry, this math spells disaster. Not only is post-paid growth over, but the carriers are actually losing post-paid subscribers at a double-digit pace. Prepaid subscribers, meanwhile, generate a lot less revenue. That means that the wireless industry’s financial metrics may take a hit as subscribers migrate to cheaper services.
The impact may not become apparent for a while. Today, most carriers are still able to show brisk overall sales growth thanks to uptake of data services, such as wireless e-mail. U.S. wireless data sales rose 32% in the first quarter year over year, according to Chetan Sharma Consulting, for the first time crossing the $10 billion benchmark. Still, if post-paid user losses continue, the migration to prepaid offerings could soon start to offset the stellar wireless data gains.