Three of the industry’s six largest wireless operators posted first-quarter financial results in line with analysts estimates and ahead of 2004 results, demonstrating there is still plenty of growth left in the wireless industry.
Building on its industry-leading customer growth during the fourth quarter of last year, Cingular Wireless L.L.C. boasted 1.4 million net customer additions in the first three months of this year, ending the quarter with 50.4 million subscribers. The results were a significant improvement compared with the 174,000 pro forma net customer additions from Cingular and recently acquired AT&T Wireless Services Inc. during the first quarter of last year. Analysts were expecting Cingular to add between 1.2 million and 1.4 million subscribers for the first quarter.
Cingular attributed the strong growth to robust gross customer additions of nearly 4.8 million subscribers and a drop in customer churn from a pro forma 3.2 percent during the first quarter of last year to 2.2 percent this year.
“Our key indicators of progress continue to point in the right direction, and that’s good news,” said Stan Sigman, Cingular president and chief executive officer. “Especially gratifying is that millions of customers are choosing to stay with Cingular. In a fiercely competitive industry like wireless, such choices are a meaningful indicator of genuine customer satisfaction.”
Merrill Lynch noted that Cingular’s strong customer growth was due to the company taking its time in migrating AWS customers, which many observers predict will lead to increased customer churn in the short term.
“We believe that Cingular will remain conservative with regard to managing migration risk, erring on the side of delaying activities vs. the potential for customer disruption,” Merrill Lynch wrote in a research report.
The investment firm added that about one-third of Cingular’s customer base remained on “non-core billing and customer-care systems,” and that it expects the carrier to ramp up merger integration activities later this year.
Despite the strong customer growth and retention efforts, Cingular’s average revenue per user continued to slide, dropping from $51.26 in pro forma ARPU during the first quarter of 2004 to $49.59 this year. The carrier noted that the decline, which Cingular has previously attributed to the popularity of lower-ARPU-generating family plans, was lower than the 5.5-percent drop posted between the fourth quarters of 2003 and 2004. Analysts said relatively stable pricing across the industry helped stem the ARPU slide.
Cingular also noted that ARPU from data services increased from $2.89 per subscriber during the fourth quarter of last year to $3.70 this year.
Total operating revenues increased more than 5 percent year-over-year from a pro forma $7.8 billion during the first quarter of 2004 to $8.2 billion this year, while operating income dropped from a pro forma $470 million last year to $114 million this year.
Sprint
The industry’s No. 3 operator, Sprint Corp., surpassed most estimates by posting 518,000 net direct customer additions in the first quarter, ending March with more than 18.3 million direct subscribers on its network. Analysts were expecting the carrier to post around 400,000 direct subscriber additions, which would have been in line with the 414,000 customers the carrier added during the first quarter of 2004.
Sprint’s wholesale and network affiliates contributed another 787,000 net customer additions during the first quarter, pushing the carrier’s total customer additions up 34 percent year-over-year to 1.3 million total net subscriber additions. The wholesale customer growth included approximately 200,000 subscribers transferred from Qwest Communications International Inc., which completed the transfer of approximately 800,000 Qwest wireless customers to Sprint’s network. Sprint ended the first quarter with 26 million total customers on its network, including 4.3 million wholesale customers and 3.4 million subscribers from its affiliates.
The carrier’s strong direct customer growth was boosted by a drop in customer churn from 2.9 percent during the first quarter of 2004 to 2.5 percent this year, which more than offset a modest 2.6-percent increase in gross subscriber additions.
Based on Sprint’s robust customer growth during the first quarter and improved customer churn, SG Cowen & Co. raised its full-year guidance for Sprint from 1.4 million direct customer additions to 1.6 million direct customer additions.
ARPU remained stable at $61 due to an increase in data revenues offsetting declines in voice revenues. Sprint noted that data services contributed $6, or 10 percent, in ARPU during the quarter, and 8 million customers subscribed to data services. The carrier also reported that it had 600,000 subscribers to its ReadyLink push-to-talk service at the end of the quarter.
Total wireless revenues increased 12.5 percent year-over-year from $3.4 billion during the first quarter of 2004 to $3.9 billion this year, despite a 13-percent drop in equipment revenues to $328 million. The carrier noted the decline in equipment revenues was due to more handsets sold at lower price points.
Operating income surged more than 64 percent from $277 million during the first quarter of 2004 to $455 million this year, while capital expenditures increased 3 percent from $406 million last year to $418 million this year. Sprint’s management noted that the carrier spent $140 million during the first quarter-and $300 million to date-on its CDMA2000 1x EV-DO network, set to launch on a market-by-market basis later this year.
The carrier said it planned to spend around $1 billion on its EV-DO deployment with plans to cover 130 million potential customers by the end of this year and 150 million pops by the middle of 2006. The carrier added it did not expect the EV-DO service to compete against traditional broadband offerings, but that its technology plans for the 2.5 GHz spectrum it controls and will acquire when it merges with Nextel Communications Inc. could prove a compelling alternative.
Alltel
Alltel Corp., which is set to become the industry’s fifth-largest carrier pending Sprint’s merger with Nextel, posted mixed first-quarter wireless results with the company reporting an 11-percent year-over-year increase in total net customer additions, but a 23-percent drop in internally driven customer growth.
For the first three months of this year, Alltel added 174,798 net subscribers, compared with 157,741 net customer additions during the first quarter of 2004, ending the first quarter with more than 8.8 million total subscribers. The carrier’s first-quarter growth included 53,961 subscribers from acquisitions, cutting Alltel’s internally derived net customer additions at 120,837 subscribers, which was well short of its previous-year results. Analysts were expecting the company to post 140,000 net customer additions for the quarter.
The drop in internal net customer additions was due to a 9-percent decrease in gross subscriber additions from 737,385 subscribers last year to 669,704 customers this year and well short of the 740,000 gross subscriber additions forecast by analysts.
Alltel did post strong improvements in customer churn that fell from 2.4 percent during the first quarter of 2004 to 2.11 percent this year, while postpaid churn dropped from 1.93 percent last year to 1.72 percent during the first quarter of this year. Alltel also reported that ARPU improved from $45.96 during the first quarter of 2004 to $48.80 this year, which was the company’s best year-over-year increase since 1998.
Overall wireless revenues increased 14 percent year-over-year from $1.18 billion during the first quarter of 2004 to $1.35 billion this year. The increase offset a 1-percent drop in Alltel’s wireline revenues, boosting the company’s total revenues 8 percent year-over-year to $2.13 billion during the first quarter of 2005. Alltel’s wireless business accounted for 63.6 percent of the company’s total revenues during the first quarter of this year compared with 60.4 percent during the first quarter of 2004.
Wireless segment income jumped 29 percent from $210.9 million during the first quarter of 2004 to $271.6 million this year, while wireless operating margins increased from 17.8 percent last year to 20.1 percent this year.
Alltel is in the process of acquiring Western Wireless Corp. for $6 billion, which will push the company’s wireless customer base to more than 10 million subscribers and cement the carrier’s position as the nation’s leading regional provider. The deal is expected to close later this year.
