Following several quarters of year-over-year customer growth, the wireless industry’s nationwide operators could be set for a softer third quarter. Customer additions are expected to fall just short of the nearly 5 million customers added last year and below the 5.2 million added during the second quarter of this year.
Based on visits to more than 80 stores in five markets, investment banking firm Merrill Lynch said it expects the now Big Four to add just more than 4.9 million net subscribers during the third quarter mainly due to a strong emphasis on seasonal back-to-school promotions and the continued strength of family plans.
Despite the overall shortfall, Merrill Lynch said it expects Verizon Wireless to post another record quarter of net additions. The firm said it raised its third-quarter net customer addition guidance for Verizon Wireless from 1.8 million subscribers to 1.95 million subscribers, and at the same time, lowered its churn estimates from 1.3 percent to 1.2 percent.
“Verizon Wireless continues to deliver a strong and consistent quality message,” noted Merrill Lynch telecommunications analyst David Janazzo. “Verizon Wireless stores stress that the carrier invests more in its network than any of its competitors.”
Verizon Wireless posted an industry-record 1.921 million net customer additions and industry-leading customer churn of 1.2 percent in the second quarter.
Merrill Lynch warned that the continued uptake of family plans, which allow customers to share minutes for $10 per month per line, likely would impact Verizon Wireless’ average revenue per user results during the quarter. The carrier’s ARPU results have dropped from around $51 per month during the middle of 2004 to below $50 per month through the first half of this year.
Verizon Wireless’ stronger-than-expected growth during the third quarter could come at the expense of Sprint Nextel Corp., which had its quarterly direct net customer addition estimates cut from 900,000 subscribers to 800,000 subscribers by Merrill Lynch. The investment banking firm noted that while Sprint Nextel kicked off its rebranding efforts in early September, store personnel “seemed somewhat confused on the new combined offer, although the situation improved throughout September.”
That confusion is expected to bump up Sprint Nextel’s customer churn from a pro forma 1.8 percent during the second quarter to 2 percent during the third quarter.
Sprint Nextel’s wholesale and reseller partnerships, including Virgin Mobile USA L.L.C. and Boost Mobile L.L.C., are expected to add another 500,000 customers during the third quarter, bringing Sprint Nextel’s total customer additions to around 1.3 million subscribers.
Interestingly, Sprint Nextel last week said it expects to post 1.2 million total net customer additions for the third quarter, including about 1 million direct subscriber additions and 200,000 subscriber additions through affiliates and MVNOs.
Merrill Lynch maintained its previous third-quarter customer growth estimates of 900,000 net customer additions for Cingular Wireless L.L.C., but noted that growth was leveling off following the carrier’s post-merger influx, and that prepaid services were more of a focus during the third quarter. Cingular recently relaunched its GoPhone prepaid offering, which it inherited when it acquired AT&T Wireless Services Inc. last fall.
Cingular also made changes to its family plans during the third quarter, aligning the plans with Verizon Wireless’ offerings, but the changes are expected to have a draining effect on ARPU similar to Verizon Wireless’ decreasing ARPU. Cingular’s management has noted that family plans have impacted ARPU during the past several quarters. The carrier’s ARPU dropped from nearly $52 per month last year to around $50 through the first two quarters of 2005.
Cingular also reportedly is still dealing with issues of integrating former AWS customers, with competitors continuing to mention an influx of former AWS customers switching away from Cingular. Despite the problems, Merrill Lynch said it maintained its forecast of 2.3-percent customer churn, which is slightly ahead of the 2.2 percent Cingular posted during the second quarter, but a big improvement compared with the 3.2-percent pro-forma churn posted during the third quarter of last year.
Merrill Lynch also maintained its previous estimate of 800,000 net customer additions for T-Mobile USA Inc., which was touted as the most effective carrier at aligning customer expectations and its service delivery proposition. T-Mobile USA store personnel noted that sales remain steady for the carrier with emphasis on its $46 per month for 1,000 anytime calling minutes and unlimited night and weekend calling promotion.
T-Mobile USA also reported last week that it had surpassed the 20-million customer plateau, doubling its total customer base during the past two and a half years. RCR
