In what is likely shaping up to be the last quarter with six nationwide operators, four of the country’s largest carriers posted relatively healthy third-quarter earnings that showed there is still penetration growth potential in the U.S. market.
Cingular Wireless L.L.C., which is set to close on its pending $41 billion acquisition of AT&T Wireless Services Inc. in the very near future, posted its strongest quarterly customer growth results in a year. The No. 2 carrier said it added 657,000 net subscribers during the third quarter, which fell just short of the 745,000 subscribers the carrier added during the third quarter of last year, but was well ahead of analysts’ estimates of between 400,000 and 500,000 net customer additions. Cingular ended the third quarter with nearly 25.7 million subscribers.
Cingular attributed the strong customer growth to record gross subscriber additions of 2.8 million customers during the third quarter and steady year-over-year customer churn at 2.8 percent.
Average revenue per user dropped more than 5 percent year-over-year from $52.43 during the third quarter of 2003 to $49.78 this year, despite a 116-percent increase in data revenues, driven by a 60-percent year-over-year increase in text messaging. Cingular said it delivered more than 1.4 billion text messages in the third quarter.
Cingular’s total operating revenues increased 4.9 percent from $4.1 billion during the third quarter of 2003 to $4.3 billion this year. Operating expenses increased 6.3 percent from $3.6 billion in 2003 to $3.8 billion this year, resulting in a drop in its operating margin from 12 percent last year to 10.8 percent this year.
AWS, today the country’s third-largest carrier, also posted mixed third-quarter results highlighted by its 170,000 net customer adds in the quarter, which fell short of the 229,000 subscribers the carrier added last year. Still, customer growth was at the high end of analysts’ estimates and was well above the 15,000 subscribers the carrier added during the second quarter. AWS ended the quarter with 21.9 million total subscribers.
AWS explained that its strong customer growth was driven by a 26.4-percent year-over-year increase in gross subscriber adds, but tempered by an increase in customer churn-from 2.7 percent during the third quarter of 2003 to 3.7 percent this year. AWS Chairman and Chief Executive Officer John Zeglis acknowledged the unacceptable level of customer churn and said there were a “number of initiatives under way addressing this issue.”
AWS’ ARPU dropped 6.2 percent from $61.20 last year to $57.40 this year, which the carrier attributed to lower recurring charges and higher promotional activities. AWS reported a 145-percent increase in data revenues compared with the third quarter of 2003.
Analysts noted a bulk of AWS’ customer growth during the quarter came from the carrier’s quasi-prepaid GoPhone offering, which does not require a contract and has typically generated lower revenue than traditional postpaid services. Lending credence to the perceived high GoPhone growth was a more than 7-percent drop in cash cost per user from $32.10 last year to $29.60 this year, while the cost per gross addition fell more than 13 percent from $335 during the third quarter of 2003 to $289 this year.
“GoPhone has a lower acquisition cost for [AWS] since it is basically a phone-in-a-box type offering that requires little salesperson assistance,” explained UBS Warburg.
AWS’ total revenues dropped 3.7 percent from $4.4 billion during the third quarter of 2003 to $4.2 billion this year, led by a 6.4-percent drop in service revenues. Net income also fell more than 25 percent from $156 million last year, a return of 6 cents per share, to $117 million this year, a return of 4 cents per share.
Sprint PCS
Sprint PCS, which is set to move into the No. 3 position behind Verizon Wireless and the combined Cingular/AWS, posted 429,000 direct customer additions during the third quarter, which was in line with analysts’ estimates and more than double the 184,000 net subscriber additions the carrier posted during third-quarter 2003. The carrier finished the quarter with 17.3 million total direct subscribers.
Sprint PCS also reported 422,000 net customer additions through its wholesale partners, which is dominated by Virgin Mobile USA L.L.C. and Qwest Communications International Inc., and 101,000 net customer additions through its affiliates. At the end of the third quarter, Sprint PCS noted its affiliates served 3.1 million subscribers and its wholesale operations served 2.8 million subscribers, bringing Sprint PCS’ total on-network customer base to 23.2 million subscribers.
Analysts said they were expecting Sprint PCS to post higher wholesale customer additions during the quarter, blaming the shortfall on a slower-than-expected migration of Qwest’s wireless customers to Sprint PCS’ network. Sprint PCS noted it has an additional 150,000 Qwest subscribers on its network that were not included in its subscriber totals because they had not been transferred to its billing system.
Customer churn remained steady year-over-year at 2.7 percent, which was slightly above estimates and a sharp increase over the 2.3 percent Sprint PCS reported during the second quarter. Sprint PCS noted the increase in customer churn compared with the second quarter was consistent with previous seasonal involuntary churn results.
ARPU remained steady year-over-year at $63 and was a slight increase compared with the $62 posted during the second quarter. Sprint PCS said it served more than 7.3 million data subscribers at the end of the third quarter, including 5.6 million subscribers to its PCS Vision service, who contributed 8 percent or around $5 to overall ARPU.
Sprint PCS’ overall revenues increased 12.6 percent year-over-year from $3.3 billion during the third quarter of 2003 to $3.8 billion this year. Operating income jumped more than 48 percent from $303 million in 2003 to $451 million this year, while adjusted earnings before interest, taxes, depreciation and amortization increased 17 percent year-over-year to $1.08 billion.
Capital expenditures also increased from $485 million during the third quarter of 2003 to $603 million this year, which analysts attributed to Sprint PCS’ plans to spend $1 billion during the next 18 months rolling out CDMA2000 1x EV-DO capabilities across its network.
Nextel
No. 6 operator Nextel Communications Inc. continued its consistent quarterly pattern of robust customer growth, near-industry-leading churn and ARPU results and enviable financial returns.
Nextel said it added 550,000 net subscribers during the quarter, which fell short of the 646,000 subscribers the carrier added last year, but was ahead of most analysts’ estimates. Nextel’s youth-oriented Boost Mobile USA L.L.C. prepaid service also surpassed analysts’ estimates, adding 195,000 subscribers during the quarter and pushing its total customer base to 800,000 subscribers.
Following its strong quarterly customer growth, Nextel’s management increased full-year guidance from its previous 1.9 million direct customer additions to more than 2 million subscribers and said it expects Boost Mobile to add more than 650,000 subscribers this year compared with previous estimates of 500,000 net customer additions.
Nextel’s customer churn increased year-over-year from 1.4 percent during the third quarter of 2003 to 1.5 percent this year, but was still below analysts’ estimates of between 1.6 percent and 1.7 percent. ARPU of $69 during the third quarter also failed to match last year’s results of $71, but was in line with estimates.
Financially, Nextel posted an 18-percent increase in revenues from $2.9 billion during the third quarter of 2003 to $3.4 billion this year, while Net income jumped nearly 70 percent from $348 million last year, or 32 cents per share, to $586 million this year, or 52 cents per share.
