us wireless market trends q2 2015

Jan Dawson Chief Analyst

(408) 744-6244 [email protected]

@jandawson

US wireless market trends for Q2 2015

mailto:[email protected]

Introduction• This analysis mostly focuses on five players: AT&T, Sprint, T-Mobile,

Tracfone, and Verizon Wireless

• These are the four largest operators in the US wireless market, four of them network operators and Tracfone a mobile virtual network operator (MVNO), running on the other companies’ networks

• US Cellular is the only other wireless operator with several million subscribers, but there are many other smaller operators with less than a million subs

• As such, this analysis captures much of the total market, but not all of it. However, these players dominate, and are likely to take an ever-increasing share of the total market going forward

2

Note• This deck represents the bottom tier of Jackdaw

Research’s analysis of the US wireless market

• We also provide the underlying data behind these charts to clients who subscribe to a higher tier

• The highest tier includes custom presentations on market trends in addition to the data

• If you are interested in these options, please contact Jan Dawson at [email protected]

3


Definitions 1• Postpaid: the majority of retail subscribers today are

described as postpaid, i.e. they pay a monthly bill based on a plan and overages. Postpaid subscribers traditionally signed two-year contracts, though this is starting to change

• Prepaid: around a quarter of retail phone subscribers, who add credit to their accounts before it is used. Prepaid plans increasingly resemble postpaid plans in certain ways, including monthly billing

4

Definitions 2• ARPU: average revenue per user. The average

monthly amount paid by a subscriber for services rendered. In the past, the major subscriber revenue metric, but increasingly being replaced by:

• ABPU: average billings per user. Whereas ARPU only includes service revenues, ABPU also includes payments for equipment installment plans, and so is a better reflection of total spend by customers

5

Definitions 3• Churn: the average percentage of subscribers who left

the carrier each month during the quarter

• Net adds: the net difference in the subscriber base from one quarter to the next, being the difference between the new subscribers added and those lost to churn

• Gross adds: the gross number of new subscribers (i.e. before those lost to churn is subtracted). Can be calculated roughly from churn and net add numbers but is generally not directly reported

6

Contents

• Financials - revenues, profitability, capital intensity

• Subscribers - total subs, net adds, churn

• Device trends - subsidies, penetration

7

Wireless revenues, $m

8Source: Company reporting, Jackdaw Research analysis

1. Financials

0

10,000

20,000

30,000

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

AT&T Sprint T-Mobile Tracfone Verizon

Revenue growth, year on year


1. Financials

-10%

0%

10%

20%

30%

40%

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015


0%

10%

20%

30%

40%

50%

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015


Wireless EBITDA margins


Note: TMO results in Q2 2014 adjusted to strip out the effects of a spectrum sale worth $731m. Sprint in Q4

2014 adjusted to remove impact of impairments

1. Financials

Wireless operating margins


Note: TMO results in Q2 2014 adjusted to strip out the effects of a spectrum sale worth $731m. Sprint in Q4

2014 adjusted to remove impact of impairments

1. Financials

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015


Wireless Capital intensity


1. Financials

0%

10%

20%

30%

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

AT&T Sprint T-Mobile Verizon

Sprint hasn’t reported wireless capex for Q2 2015 yet, and appears to have switched to reporting cash capex only

Total subscribers, 000s


2. Subscribers

0

25,000

50,000

75,000

100,000

125,000

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

AT&T Sprint T-Mobile Tracfone Verizon (retail only)

0

25,000

50,000

75,000

100,000

125,000


Postpaid PrepaidConnected Wholesale

Subscriber breakdown, 000s


Note: Verizon doesn’t report wholesale or connected devices (M2M) subscribers. In addition, since Sprint

reports its connected devices subscribers as part of its retail postpaid and wholesale subscribers, but also

reports these separately, we have broken them out and subtracted them from the postpaid and wholesale

subscriber totals to avoid double-counting

2. Subscribers

Total net adds, 000s


2. Subscribers

-1,000

0

1,000

2,000

3,000

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

AT&T Sprint (platform) T-Mobile Tracfone Verizon

-1,000

0

1,000

2,000

3,000

AT&T Sprint platform T-Mobile Tracfone Verizon

Postpaid Prepaid Connected Wholesale

Net add breakdown, 000s


Note: since Sprint reports its connected devices subscribers as part of its retail postpaid and wholesale subscribers, but also reports these

separately, we have broken them out and subtracted them from the postpaid and wholesale net add totals, In addition, Verizon doesn’t report

connected or wholesale subscribers or net adds so these are missing.

2. Subscribers

Postpaid net adds by device, 000s


2. Subscribers

-500

0

500

1,000

1,500

AT&T Sprint T-Mobile Verizon Wireless

Postpaid phone net adds Postpaid tablet net adds

Postpaid phone net adds, 000s


2. Subscribers

-750

-500

-250

0

250

500

750

1,000

1,250

1,500

Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015


Postpaid tablet net adds, 000s


2. Subscribers

0

500

1,000

1,500

Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015


Total net adds for big 5, 000s


2. Subscribers

-2,000

0

2,000

4,000

6,000

8,000

Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015

Postpaid Prepaid Wholesale ConnectedTotal Phones Tablets

Total subs for big 5


2. Subscribers

0

100,000

200,000

300,000

400,000

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

Postpaid Prepaid Connected Total

Total subs for big 5


Note: excludes wholesale to avoid double-counting. Figures

for end of Q2 2015

2. Subscribers

10%

21%

69%

Postpaid Prepaid Connected

Market makeup

23

Note: all numbers and percentages estimated. Totals only represent the five major operators

Source: Company reporting, Jackdaw Research analysis

2. Subscribers

10%

4%

6%

8%

9%

13%

50%

Total postpaid smartphonesTotal prepaid smartphonesTotal postpaid feature phonesTotal prepaid feature phonesTotal postpaid tabletsTotal other mobile broadband etcTotal connected devices (excl. Verizon)

Churn – postpaid


2. Subscribers

0%

1%

2%

3%

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015


Churn – prepaid


2. Subscribers

0%

2%

4%

6%

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

Sprint T-Mobile Tracfone

Losses implied by postpaid churn, 000s


2. Subscribers

0

1,000

2,000

3,000

4,000

Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 Q2 2015


Estimated postpaid gross adds, 000s


2. Subscribers

0

1,000

2,000

3,000

4,000

5,000

6,000

Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 Q2 2015


$45

$50

$55

$60

$65

$70

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

AT&T (phone-only)SprintT-MobileVerizon (ARPA/CPA)

ARPU – postpaid


Verizon’s ARPU is estimated from its ARPA (per account) figure, while others are as reported. These numbers do not include equipment

installment payments, whereas the ABPU figure on the next slide does

2. Subscribers

ABPU – postpaid


2. Subscribers

50

55

60

65

70

Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015


ARPU - prepaid


2. Subscribers

$0

$10

$20

$30

$40

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015

Sprint T-Mobile Tracfone

Smartphone sales as % of postpaid phone sales


3. Device metrics

60%

70%

80%

90%

100%

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015


0

3

6

9

12

15

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015


Number of smartphones sold, m


Note: for AT&T and Verizon, these numbers represent postpaid phone sales only. For Sprint and T-Mobile, they include prepaid

phone sales. Sprint has unfortunately stopped reporting this metric.

3. Device metrics

% of postpaid phone base on smartphones


3. Device metrics

0%

30%

60%

90%

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015


0%

2%

4%

6%

8%

10%

12%

Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015


% of postpaid phone base upgrading in quarter


Note: Sprint and T-Mobile had identical numbers in Q4 2013 and Q1 2014. Hence, the lines representing them in the chart overlap each other during those two quarters. AT&T didn’t report this metric for several quarters but did again in Q4 2014.

3. Device metrics

Equipment revenue, $m


3. Device metrics

0

1,000

2,000

3,000

4,000

5,000

Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015


Installment billings, $m

36

3. Device metrics

0

200

400

600

800

1,000

1,200

1,400

1,600

Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015

AT&T (actuals and estimates)Sprint (includes Lease plans)T-MobileVerizon (actuals and estimates)

0%

10%

20%

30%

40%

50%

60%

70%

Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015

AT&T Sprint Verizon

% of postpaid sales off subsidy system

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Note: T-Mobile no longer reports this metric, but had passed 80% in Q1 2014, when it last reported.

3. Device metrics

% of postpaid base off subsidy model

38

3. Device metrics

0%

20%

40%

60%

80%

100%

Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015


Jan Dawson Chief Analyst

(408) 744-6244 [email protected]

@jandawson

Thank you
