In the wireless business, we hear a lot of talk from analysts. Sometimes they are on point, sometimes they are way off. This time they are predicting that AT&T and T-Mobile are more likely to hold onto subscribers in Q1 than their competitors Sprint and Verizon. Sprint may not be a huge surprise – although after the changes Marcelo Claure has made, it could be a surprise – but Verizon is the real surprise. Each quarter, Verizon adds a ton of new subscribers. They always lose some, thats inevitable. But lately, Verizon's churn rate has been increasing. For those unaware, Churn is the rate at which customers are leaving. So if you bring in 2 customers for every customer that leaves, you have a negative churn rate, which investors love.
Jefferies analysts Mike McCormack, Scott Goldman, and Tudor Mustata wrote in a research note today, that carriers are adding subscribers at rates that are closer to their historical averages. These analysts believe that churn will be a crucial metric to watch in the first quarter. With both AT&T and T-Mobile recently highlighting better-than-expected trends, with Sprint and Verizon likely to report slightly higher churn rates.
Earlier this month, AT&T came out and said that they expect to have around 400,000 postpaid customers added in the first quarter of the year. That would be a weaker performance than what they did a year ago. AT&T is expecting to improve their postpaid churn rate though, in the quarter. The company stated that their churn rate is running lower on a year-over-year and a sequential basis right now. In Q1 2014, the churn rate was 1.07 percent, and 1.22 percent in Q4 2014. The Jeffries analysts wrote about AT&T "…taken a less aggressive stance in Q1, seemingly favoring profitability and [free cash flow] over incremental market share. Nevertheless, we reduce postpaid handset adds, our ARPU decline is now 11.5%, relatively in line with the Street." Additionally, they believe that AT&T's earnings will fall below Wall Street's expectations for the quarter.
Last week, T-Mobile held their Uncarrier event in NYC. T-Mobile's management stated that the carrier expects to report postpaid churn for handset subscribers of 1.4 percent. The Jeffries analysts stated that this was lower than they had expected. The analysts also stated that they expect T-Mobile to add around 1.1 million postpaid customers and about 300,000 prepaid customers in the quarter. Wells Fargo analyst Jennifer Fritzsche estimated earlier this month that T-Mobile will add about 1.03 million customers in the quarter. With Credit Suisse analyst Joseph Mastrogiovanni estimating about 1 million postpaid adds for Magenta.