A number of wireless carriers released surprising first-quarter financial results last week showing stronger than expected customer additions despite continued uncertainty in the U.S. economy.
“In fact, based on the results in so far, net additions are tracking 5-percent below [first-quarter 2000], better than our expectations for an 8-percent year-over-year decrease,” said Peter Friedland, wireless analyst at W.R. Hambrecht+Co., in a recent research report. “This suggests that the slowing domestic economy has apparently not yet had a significant negative impact on domestic subscriber growth. Although we are cautious that the 5-percent decline may expand to 10 percent by year end resulting from continued effects of the slowing economy, so far it seems the effects have been relatively benign.”
Among the carriers reporting last week was AT&T Wireless, which beat most analysts’ expectations by adding 585,000 net subscribers during the quarter bringing its total customer base to 15.7 million subscribers. Including its partnerships and affiliates, the country’s third-largest wireless operator added 870,000 customers, ending the quarter with 17.9 million subscribers.
Company revenue jumped more than 46 percent compared with the first quarter of 2000 to $3.2 billion, meeting analyst’s expectations. AT&T Wireless attributed the strong revenue numbers to its subscriber growth, though it was partially offset by lower than expected average revenue per user of $62. The strong revenue growth pushed the carrier’s earnings before interest, taxes, depreciation and amortization up more than 81 percent for the quarter to $717 million. Customer churn increased slightly to 3 percent from the 2.9 percent reported during the fourth quarter of 2000.
“In essence, we’ve been laying the groundwork for our future success,” said John Zeglis, chairman and chief operating officer for AT&T Wireless Group.
The carrier’s strong quarter did not impress all, with Prudential Securities downgrading its rating of AT&T Wireless’ stock from accumulate to hold. The firm noted that while subscriber growth, cash flow and costs per customer addition came in ahead of estimates, the carrier’s increase in customer churn and lower ARPU numbers were cause for concern, owing to its increased focus on prepaid customers.
“We believe the prepaid focus carries longer-term negative operating implications and we cannot justify a higher target price than $21 a share in our model,” Prudential said in a research report last Wednesday.
SBC Communications Inc. and BellSouth Corp. also reported strong numbers for their wireless joint venture, Cingular Wireless. The nation’s second-largest wireless carrier added 854,000 net subscribers during the first quarter, bringing its customer base to 20.5 million subscribers. The strong customer additions drove the carrier’s wireless revenues up nearly 15 percent to $3.1 billion compared with pro forma levels during the first quarter of 2000.
Cingular Interactive, the wireless data and two-way messaging division, added 84,000 customers during the quarter.
Even with its wireless operations’ robust quarter, SBC reported disappointing results, which the company attributed to the slowing economy. Profits fell to $1.7 billion, a return of 51 cents per share, compared with $1.9 billion, a return of 56 cents per share, reported a year ago. SBC also warned its year-end results might not meet expectations.
Denver-based Qwest Communications International Inc. followed SBC’s lead, posting strong wireless subscriber additions and service revenue with falling net income for the company as a whole.
The regional wireless operator added 908,000 customers during the quarter, up from the 805,000 added during the first quarter of 2000. Qwest said the results include the termination of 30,000 customers in its “low-value, prepaid wireless business,” as the carrier attempts to attract higher-volume consumers and small business customers. Qwest said it plans to eliminate an additional 8,000 customers during the second quarter.
As a whole, Qwest’s net income fell nearly 9 percent to $218 million compared with last year’s numbers, due to additional costs to build its wireless and data operations.
GSM operator VoiceStream Wireless Corp. said it added 484,700 subscribers during the first quarter, bringing its customer base to 4.4 million subscribers. While the carrier did not release financial numbers, it expects consolidated service revenues to increase by 125 percent for the year compared with last year’s results. Cash-flow losses also are anticipated to be less than $300 million for the year, with a majority coming from first-quarter results.
VoiceStream Wireless also received good news with the approval of its acquisition by Germany’s Deutsche Telekom. The approval also triggered VoiceStream’s acquisition of U.S.-based GSM operator Powertel Inc.
Alltel Corp. added nearly 109,000 wireless subscribers, beating many analysts’ forecasts of around 100,000 net customer additions. The regional telecom operator also posted strong customer churn numbers of 2.4 percent for the quarter, just ahead of analyst predictions and below the industry average of nearly 3 percent.
While questions still remain about the carrier’s wireless growth for the rest of the year, Alltel reiterated its year-end earnings per share forecast of $2.85 to $3 per share, noting the weakening economy has yet to impact its operations.
Other carriers releasing numbers last week included Nextel Partners Inc., which added 61,600 subscribers during the quarter bringing its customer base to 289,000 subscribers, and CenturyTel Inc., which said it added 17,600 subscribers during the quarter.
Verizon Wireless and Sprint PCS previously released first-quarter numbers with mixed results. Sprint PCS added more than 850,000 subscribers, just ahead of expectations, while Verizon Wireless fell below predictions by adding 518,000 customers during the quarter.
