Six of the nation’s eight largest wireless carriers posted second-quarter results, highlighted by strong customer growth at Sprint PCS, Alltel Corp. and U.S. Cellular Corp. and continued financial gains by Nextel Communications Inc., but tempered by sluggish performances from Cingular Wireless L.L.C. and AT&T Wireless Services Inc. The results also showed an increasing dependence on the two nationwide carriers that did not report last week-Verizon Wireless and T-Mobile USA Inc.-for driving the industry’s current growth spurt.
Sprint PCS, Alltel and U.S. Cellular each posted a greater than 30-percent increase in customer growth between the second quarter of 2003 and 2004, compared with a small decline by Nextel, a moderate drop posted by Cingular and a dramatic, though not surprising, reduction by AWS. Combined, the six operators added nearly 1.8 million customers during the second quarter, which was a 17-percent drop from the previous year’s 2.15 million net customer additions.
Sprint PCS posted the sharpest increase, from 360,000 new subscribers in 2003 to 505,000 net customers this year, not including the 392,000 customers the carrier added this year through its wholesale partners, which continues to be predominantly Virgin Mobile USA L.L.C. and affiliates. Analysts were expecting Sprint PCS to add around 400,000 subscribers during the second quarter, but the carrier’s lower-than-expected 2.3-percent customer churn helped Sprint PCS surpass estimates.
Sprint PCS’ strong growth was also witnessed in revenues that increased nearly 17 percent from $3.1 billion during the second-quarter 2003 to $3.6 billion this year, and in its earnings before interest, taxes, depreciation and amortization, which increased more than 20 percent from $887 million last year to $1.065 billion this year.
While not on equal footing in sheer numbers as its larger competitors, both Alltel and U.S. Cellular contributed more than their fair share of growth to the industry during the quarter, posting 39- and 33-percent year-over-year increases in customer additions respectively.
Alltel’s 155,307 net customer additions, which constituted an 8.7-percent share of the subscribers added by the six carriers, was boosted by a drop in customer churn from 2.45 percent last year to 2 percent this year. Alltel’s second-quarter customer growth was even more impressive as all of its 2004 net additions were internally generated, compared with last year when more than one-fourth of the company’s net customer additions were through acquisitions.
Alltel also posted a slight increase in wireless revenues from $606.2 million during the second quarter of 2003 to $609.6 million this year, while wireless-derived income remained flat at $262 million.
U.S. Cellular’s 137,000 new subscribers-well ahead of estimates of around 100,000 net additions-were collected through an increase in gross customer activations, as the carrier maintained its 1.5-percent postpaid customer churn from second-quarter 2003. U.S. Cellular’s strong growth prompted the carrier to increase full-year guidance from around 500,000 net customer additions to around 600,000 new subscribers.
The carrier also posted a 10-percent uptick in revenues from $646 million last year to $712 million this year, while net income jumped from a loss of $1.7 million last year, or a loss of 2 cents per share, to a $38 million profit, or 44 cents per share.
Nextel’s second-quarter results proved to be a mixed blessing, as the carrier’s 546,000 net customer additions during the quarter (which do not include its Boost Mobile L.L.C. prepaid division) fell short of the 591,000 subscribers the carrier added last year, but was still in line with analyst estimates. Nextel also managed to surpass the customer growth of its larger and more diverse competitors. Also, analysts noted Boost Mobile’s 68,000 net adds during the quarter were well below expectations, despite a recent rollout beyond its initial West Coast deployment.
But Nextel more than doubled its net income during the quarter from $281 million last year, or 28 cents per share, to $608 million this year, or 53 cents per diluted share.
Further holding down the segment’s customer growth were Cingular and AWS, which posted 20.7- and 96.6-percent year-over-year drops respectively in net subscriber additions.
Cingular’s customer growth, which totaled 428,000 subscribers during the quarter compared with 540,000 customers last year, was hampered by an increase in customer churn from 2.5 percent to 2.7 percent, though the carrier noted it surpassed the 25-million subscriber mark during the quarter. Cingular’s management added that nearly 90 percent of its net customer additions during the quarter were higher-quality postpaid subscribers, and the recent expansion of wireless local number portability had minimal impact on its subscriber numbers.
Cingular also posted mixed financial results that included a 7.3-percent increase in total revenues from $3.9 billion last year to $4.2 billion this year, offset by a 10-percent drop in net income from $756 million during the second quarter of 2003 to $680 million this year.
AWS’ 15,000 net customer additions fell well short of the 446,000 subscribers the carrier added during the second quarter of 2003, but were actually ahead of expectations and looked downright bullish compared with the 380,000 subscribers the carrier lost during the first three months of this year. The carrier also managed to improve its customer churn from the 3.7 percent it posted during the first quarter, when it was besieged by WLNP-related ports, to 3.4 percent during the second quarter, which was just low enough for the carrier to ride its 2.2 million gross customer adds to a meager gain in subscribers.
“We signed up a record number of new customers for a second quarter, and its was the fourth consecutive quarter on which we’ve added more than 2 million new customers,” said John Zeglis, chairman and chief executive officer of AWS.
Despite the positive spin provided by its strong gross customer additions, AWS’ total revenues increased a modest 1.5 percent year-over-year from $4.16 billion to $4.22 billion, while net income dropped more than 72 percent from $222 million last year, or 8 cents per share, to $61 million this year, or 2 cents per share.
AWS management added that the carrier is continuing to focus on network quality, pricing and customer care ahead of its expected acquisition by Cingular later this year, but noted it is finding challenges in attempting to migrate the 14 million customers using its TDMA network, as well as the pending loss of the well-known AT&T brand name.
The collective slowdown in customer additions during the second quarter by the six carriers that reported results last week could be washed away if Verizon Wireless and T-Mobile USA can again post customer additions in excess of the 1 million subscribers each has posted during the past several quarters. But, as one analyst noted, if the reliance on those two carriers to drive growth continues, the thought that there is more than a pair of “big” carriers could be in jeopardy.
