Investment banking firm Merrill Lynch said it expects the continued strong growth of family plans to drive the wireless industry’s five nationwide operators to post a 14.8-percent year-over-year improvement in net subscriber additions in the second quarter.
The firm said it expects the carriers to report 4.7 million net customer additions during the quarter, compared with 4.1 million net additions during the second quarter of 2004, boosted by a strong year-over-year drop in customer churn from 2.5 percent to 2 percent and a modest 4.5-percent increase in gross subscriber additions.
Industrywide, Merrill Lynch said it is maintaining its forecast of 22 million net customer additions for the year-which is at the low end of consensus and in line with 2004 results-and a 69-percent year-end penetration level.
Individually, Merrill Lynch raised its second-quarter customer growth guidance for Verizon Wireless at the expense of larger competitor Cingular Wireless L.L.C. and maintained guidance for the other national carriers following visits to more than 80 retail stores in four markets during May and June.
Verizon Wireless is forecast to add 1.6 million net subscribers during the second quarter, compared with Merrill Lynch’s previous 1.5 million net customer additions guidance, and garner about 34 percent of customer growth during the quarter.
“We have not observed a slow down in Verizon Wireless’ share since the acquisition by Cingular of AT&T Wireless [Services Inc.] closed,” explained Merrill Lynch analyst David Janazzo in a research report. “Anecdotally, if customers leave Verizon Wireless, it is often because they are looking for an international plan.”
Merrill Lynch added that it expects Verizon Wireless’ strong growth to be bolstered by a low 1.3-percent monthly churn rate.
Merrill Lynch did note that Verizon Wireless’ consumer-friendly CDMA2000 1x EV-DO Vcast service has not been as successful as store employees had hoped. The report cited concerns that the devices were too bulky and that the $15 per month fee was a hurdle for younger consumers.
Highlighting a slowdown in migrating AWS customers and slower prepaid growth, Merrill Lynch cut its customer growth guidance for Cingular from 1.3 million net additions to 1.2 million net additions. Cingular and AWS added a combined 443,000 subscribers during the second quarter of last year, but following their merger last October, added more than 3.1 million customers during the fourth quarter of 2004 and first quarter of this year.
“Essentially, we think that the AT&T Wireless migration is probably past the `early adopter’ stage,” Janazzo said. “We sensed that some former AT&T Wireless customers, that have not yet migrated, are getting upset when told that in order to get a new phone, they must switch to a potentially more expensive Cingular plan and pay the $18 activation fee.”
Janazzo added that Cingular customers are also becoming frustrated about a perceived lack of improvement in network quality following the acquisition of AWS. The Cingular revision included an increase in customer churn guidance from 2.2 percent to 2.3 percent.
Merrill Lynch maintained its previous guidance of 900,000 net customer additions for T-Mobile USA Inc., and 500,000 net customer additions for both Sprint Corp. and Nextel Communications Inc.
T-Mobile USA was singled out as relying heavily on promotions to maintain its robust growth forecast, including the re-launch of its $46 promotion that includes 1,000 anytime calling minutes and unlimited night and weekend minutes. The plan is available in a number of Western markets for $40 per month.
Sprint’s forecasted growth would be in line with second-quarter 2004 results despite an expected increase in customer churn from 2.3 percent to 2.4 percent. Merrill Lynch also noted that Sprint’s Fair & Flexible offering has become the de-facto standard plan in most retail outlets with customers having to ask specifically for the carrier’s traditional Free & Clear plans.
Nextel’s customer growth estimates would fall short of the 546,000 customers the carrier added during the second quarter of last year, but do not include an expected 300,000 net additions through its youth-oriented Boost Mobile prepaid service.
