With three months of financial and operational performance on the books, 2005 is setting up as another strong year for the wireless industry. Analysts noted that first-quarter results have shown a substantial year-over-year improvement in customer growth along with improving churn and margin performances highlighting the relative health of most wireless operators.
“Most carriers are carrying their own weight and in most cases showing year-over-year improvements,” noted Kevin Roe of Roe Equity Research.
T-Mobile
T-Mobile USA Inc. was the final nationwide operator to post results reporting a surprisingly strong 957,000 net customer additions for the first quarter of this year. While the growth fell short of the nearly 1.2 million customers the carrier added during the first quarter of 2004, it was well ahead of analysts’ forecasts of around 815,000 net additions. T-Mobile USA ended the quarter with more than 18.2 million total subscribers.
T-Mobile USA noted that about 19 percent of its net customer additions during the quarter were prepaid customers, and that 12 percent of its total customer base were prepaid subscribers at the end of the quarter. T-Mobile USA had previously said it expected prepaid customers to make up a growing percentage of its customer growth and recently launched a new branding effort for its prepaid offering.
Roe said he was unconcerned about the increase in prepaid customers noting the industry is going to need to tap that market if it plans on growing beyond its current 60-percent penetration rate.
“I am not that concerned about T-Mobile’s prepaid numbers,” said Roe. “The total prepaid base is still low at around 12 percent and has not had a significant impact on ARPU or churn results.”
T-Mobile USA also reported it added 91,000 customers during the quarter to its Research In Motion Ltd. BlackBerry-based service, bringing its total BlackBerry customer base to 502,000 subscribers. RIM recently reported it had surpassed 3 million subscribers for its BlackBerry service.
A drop in customer churn from 3 percent during the first quarter of 2004 to 2.8 percent this year bolstered T-Mobile USA’s relatively strong growth. The carrier’s management attributed the churn reduction to its retention efforts and commitment to higher-quality service. T-Mobile USA has won a number of customer service and network quality awards from J.D. Power and Associates during the past several months.
Average revenue per user remained steady year-over-year at $54 despite a slight decline in prepaid ARPU from $29 during the first quarter of 2004 to $28 this year. T-Mobile USA noted that data services accounted for 7.6 percent of postpaid ARPU during the quarter compared with 4.5 percent last year.
Total revenues surged more than 32 percent from $2.6 billion during the first quarter of 2004 to $3.4 billion this year. The 2005 results included $120 million in wholesale revenues, which included Cingular Wireless L.L.C. customers using T-Mobile USA’s recently acquired networks in California and Nevada that have not yet been transitioned to AT&T Wireless Services Inc.’s network that Cingular gained when it bought AWS last October.
The strong revenue gains also propelled T-Mobile USA’s net income from a loss of $157 million during the first quarter of 2004 to a return of $103 million this year.
Leap
Further down the carrier rankings, Leap Wireless International Inc. reported delayed fourth-quarter and full-year 2004 results that included strong customer growth and improving financial metrics. Leap had previously noted that its results would be delayed due to accounting issues.
The carrier said it added 29,000 subscribers during the final three months of last year, compared with a loss of 5,000 customers in fourth-quarter 2003. Leap noted that it added 97,000 subscribers for all of 2004, compared with a loss of 39,000 customers during 2003, and that it ended 2004 with 1.57 million total customers.
The robust quarterly growth was boosted by a 21-percent increase in gross subscriber additions and a drop in customer churn from 4.3 percent during the fourth quarter of 2003 to 4.1 percent last year. Full-year gross subscriber additions also improved 10 percent to 807,868 customers in 2004, while full-year churn dropped from 4.4 percent in 2003 to 3.9 percent last year.
The strong customer growth, improved financial metrics and emergence from bankruptcy protection last August also helped boost Leap’s total revenues 9.4 percent during the fourth quarter from $188.9 million in 2003 to $206.6 million last year. Fourth-quarter net losses also improved from a loss of $172.8 million in 2003, or $2.95 per share, to a loss of $6.6 million last year, or 11 cents per share.
Leap’s full-year revenues increased nearly 10 percent from $751.3 million in 2003 to $826 million last year, while net income turned from a loss of $597.4 million in 2003 to a return of $904.6 million last year. Leap noted that its 2004 net income included $962.4 million of reorganization items reflecting its “fresh-start accounting” implemented following its emergence from bankruptcy protection.
Leap’s management also released preliminary first-quarter results that included nearly 46,000 net customer additions, a 3.3-percent customer churn rate and ARPU between $38.25 and $39.25. In addition, Leap said it anticipates total consolidated revenues during the first quarter to be in the range of $223 million to $228 million and operating income of between $19 million and $24 million.
Rural Cellular
Roaming revenues for Rural Cellular Corp. dropped from $25.7 million in 2004 to $19.6 million this year and decreased from 21.5 percent of total revenues during the first quarter of 2004 to 15.9 percent this year. Rural Cellular’s management noted roaming revenues were hurt by the accelerated transition of its national roaming partners to next-generation technology handsets, which impacted total roaming minutes, and the transfer of one of its service areas to AT&T Wireless Services Inc. in early 2004. Rural Cellular also noted that roaming yield per minute dropped from 18 cents per minute last year to 14 cents per minute this year.
Its net losses grew from $18.5 million during the first quarter of 2004, a loss of $1.51 per share, to $21.8 million this year, a loss of $1.77 per share. The carrier attributed the slide to a 13.7-percent increase in network costs reflecting additional costs of operating multiple networks, increased incollect expense and new cell-site activations during the quarter.
Rural Cellular reported the loss of 3,064 subscribers during the quarter, which left the carrier with 726,747 total customers at the end of the first quarter. The carrier attributed the customer losses to an increase in customer churn from 2 percent during the first quarter of 2004 to 2.4 percent this year.
The carrier noted TDMA customer service issues in its Northeast and Northwest regions drove the increased customer defections during the quarter. Rural Cellular explained that it experienced technical issues on its legacy TDMA network in those regions, as well as saturation of its call centers resulting from activations and migrations, and other calls dealing with billing and technical questions.
Dobson Communications
Dobson Communications Corp. reported roaming revenues increased from 18 percent of total revenues during the first quarter of 2004 to 20 percent of revenues this year, despite a drop in roaming yield from 13.9 cents per minute in 2004 to 13.5 cents per minute this year. The decreased yield was offset by a 23-percent increase in total roaming minutes from 322 million minutes during the first quarter of 2004 to 395 million minutes this year.
Net losses for the carrier increased from a loss of $16.5 million during first-quarter 2004, a loss of 12 cents per share, to a loss of $25.4 million this year, a loss of 19 cents per share. The degradation was attributed to increased operating expenses and an increase in depreciation and amortization.
Dobson previously reported the loss of 18,800 net subscribers during the first quarter of this year compared with the loss of 5,400 customers during the first quarter of 2004. The carrier attributed the increased loss to a surge in postpaid customer churn to 1.9 percent during the first quarter of 2004 to 2.43 percent this year, which more than offset improvements in gross subscriber additions. Dobson ended the first three months of the year with 1.59 million subscribers.
