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The Zacks Analyst Blog Highlights: Verizon Communications, AT&T, T-Mobile US and Sprint

For Immediate Release

Chicago, IL – October 31, 2017 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Verizon Communications Inc. VZ, AT&T Inc. T, T-Mobile US Inc. TMUS and Sprint Corp. S.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Monday’s Analyst Blog:

U.S. National Carriers: Key Takeaways from Q3 Earnings

We are in the middle of the third-quarter earnings season for the telecommunications segment. With results from four national telecom carriers, Verizon Communications Inc., AT&T Inc., T-Mobile US Inc. and Sprint Corp. already on board, a study of their key financial and operating metrics will be interesting.

Services Revenues

Except T-Mobile US, the other three companies wireless services revenues declined year over year in the reported quarter. This was primarily due to the adoption of several unlimited data plans by Verizon, AT&T and Sprint in order to counter T-Mobile US’ data plans. However, Verizon, AT&T and T-Mobile US’ wireless service revenues improved sequentially, while Sprint failed to follow suit.

T-Mobile US’ - Un-Carrier – service, which was launched in March 2013 to offer a series of price concessions such as no annual service contract, equipment-instalment facility, free international-data roaming, helped the company gain a strong foothold. Offers such as unlimited data download and international roaming facility, coupled with no annual service contract, garnered significant market traction.

In the wireline front, Verizon’s services revenues increased. However, services revenues decreased for both AT&T and Sprint. Verizon stated that extensive deployment of fiber network is going to raise its wireline revenues in the future. We expect the same for AT&T and Sprint.

Margins

For the wireless segment, adjusted EBITDA margins improved on a year-over-year basis for both Verizon and Sprint impressively. For Verizon it increased from 44.9% to 46.2% and for Sprint it rose from 38.6% to a significant 48.9%. For AT&T, operating margin for domestic wireless operation also increased from 29.6% to 30.5%. However, for T-Mobile US, adjusted EBITDA declined a percentage point from 38% to 37%.

Subscribers Addition

Although all the four telecom operators added postpaid wireless customers in the reported quarter, a closer look gives us a more interesting picture. Notably, postpaid customers are those who are billed monthly and considered more profitable to telecom operators.

Verizon added 603,000 (up 36.4% year over year) retail postpaid customers and 139,000 (up 67.5%) retail prepaid customers. Importantly, the company added a net 30,000 postpaid phone customers in the reported quarter compared with a net loss of 107,000 postpaid accounts in the prior-year quarter.

On the other hand, AT&T’s domestic mobile operation added a net 117,000 (down 44.8%) postpaid connections and 324,000 (up 6.6%) prepaid connections. Here it needs to be mentioned that in the reported quarter, AT&T lost 251,000 satellite TV customers and 134,000 U-verse TV customers. However, it gained 296,000 DIRECTV NOW connections.

Sprint added a net 168,000 (down 51.1%) postpaid subscribers and 95,000 prepaid customers compared with a loss of 449,000 prepaid customers in the prior-year quarter. T-Mobile US added a net 595,000 (down 30.1% year over year) postpaid phone customers, 222,000 (up 88.1%) postpaid mobile broadband customers and 226,000 (down 67%) prepaid customers.

Churn Rate and ARPU

Verizon and T-Mobile US improved their postpaid churn rate. However, for AT&T and Sprint, the postpaid churn rate worsened year over year. The postpaid churn rate improved from 1.04% to 0.97% for Verizon and 1.32% to 1.23% for T-Mobile US. On the other hand, AT&T’s domestic postpaid churn increased marginally from 1.05% to 1.07% while for Sprint, it worsened from 1.52% to 1.72%. Importantly, for the national wireless carriers, average revenue per user (ARPU) has declined. This was primarily due to adoption of unlimited data plans offering a lot of services free of cost.

Our View and Zacks Rank

The U.S. telecom market continues to witness intense pricing competition as success depends largely on technical superiority, quality of services and scalability. Challenges in the form of competitive product introduction and cut-throat pricing pressure will persist in the telecom sector.

After taking a closer look at the third quarter results, we can deduce that T-Mobile US and Verizon have done reasonably well with respect to important financial and operating metrics. Although Sprint’s subscriber metrics improved, it missed on revenues. Moreover, the company is still reeling under loss. Further, a possible merger between Sprint and T-Mobile US is rife. AT&T, on its own part, is aggressively offering bundled services. However, it needs to set the stage right as so far, its bundled customer addition has failed to match the outflow of users from its legacy services.

Our view is also established while considering the Zacks Rank. Verizon, T-Mobile US and Sprint carry a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AT&T carries a Zacks Rank #4 (Sell).

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T-Mobile US, Inc. (TMUS): Free Stock Analysis Report
 
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