NEW YORK—Despite prepaid and reseller additions driving much of the growth within the wireless industry, Fitch Ratings concludes in a new report that the industry will continue to be profitable.
The first quarter showed trends from 2005 continuing, Fitch analyst Bill Densmore noted, with prepaid and reseller additions making up an increasing percentage of customer additions. Further, data services are also helping to mitigate losses in average revenues per user.
Carriers continued to slim down their postpaid churn, and industry margins improved to 32 percent, “driven by Cingular [Wireless L.L.C.]’s synergies from AT&T Wireless Services Inc. merger and Verizon Wireless’ strong organic growth due to impressive subscriber additions resulting in improved economies of scale,” Densmore said.
Given the industry’s improvement in various metrics, Fitch believes that “the underlying credit quality of wireless carrier operations has increased despite the increasing mix of prepaid gross additions, as postpaid subscribers generate the bulk of the service revenue.”
The report went on to note that in light of the growing demand for wireless services—data, in particular—coupled with the effects of consolidation and expected declines in capital intensity, Fitch believes that the “wireless industry will continue to improve profitability and cash flow yields over the next few years.”
