As wireless earnings season begins, analysts will find out if bundling deals and steep handset discounts were enough to shield the industry from inflationary pressures and help sustain strong subscriber growth during the third quarter.
Inflation has continued to rise, leading to more discriminatory consumer spending on some products and services. The core consumer price index increased 6.6% from September 2021, the largest annual increase since August 1982, the Bureau of Labor Statistics reported Oct. 13. However, the price customers paid for wireless decreased 1.1% over that one-year period.
So far, carriers have been able to maintain momentum through subsidies on devices. They have also created premium service bundles, with extra lines and content packages, that customers are willing to pay for, said Lynnette Luna, an analyst at Kagan, a media research group within S&P Global Market Intelligence.
"Carriers have continued to do a good job of offering heavy discounts on smartphones to entice users," Luna said. This has helped them avoid "any dramatic price cutting for actual service," Luna said.
Competition and churn
A prime example of a premium service bundle can be seen from Verizon Communications Inc. The telco launched a new prepaid wireless brand, Total by Verizon, on Sept. 21. While monthly plans start at $30, Total's most premium plan costs $60 a month and includes a Walt Disney Co. Disney+ subscription, 5G Ultra Wideband access, unlimited talk, text and data, 20 GB of hotspot data, and international talk and text to 69 countries.
Total follows the July launch of Verizon's Welcome Unlimited plan. The offering starts at $30 per line per month for four lines and includes free six-month trials of Disney+, Apple Inc.'s Apple Music and a choice of gaming subscriptions.
The offerings come as Verizon seeks to hang onto its market leadership position. Though the overall wireless market remains robust, Verizon reported only 12,000 postpaid phone net adds in the second quarter and a loss of 36,000 in the first quarter. As for the third quarter, the company expects to post wireless phone losses.
Additionally, Verizon has been losing distribution. The number of Verizon stores slipped from 7,079 in November 2019 to 6,438 in November 2021 and 6,390 in May 2022, which amounts to a recent average of eight net store closures per month, according to data from wireless research company Wave7 research.
"On the consumer side, we're still going to have a negative net adds on phones in the third quarter, but clearly, we will have an improvement," said Verizon Chairman and CEO Hans Vestberg during a presentation at a Goldman Sachs investor event in September.
Vestberg attributed the higher churn in the third quarter to price hikes announced in late June that saw customers' monthly bills go up by as much as $12.
"With the price increases, we're going to get the churn bubble in the third quarter on the consumer side because that's how it works," Vestberg said, adding that the price increases were nevertheless "a financially right and sound decision in order to continue to grow our cash flow."
Fixed wireless expansion
Despite a drop in stores and wireless subscribers, Verizon has been aggressive in its fixed wireless expansion strategy. Revenue from its fixed wireless business will support an overall revenue increase for the quarter, Kagan's Luna said. The company aims to cover at least 175 million people with its 5G Ultra Wideband network by year-end 2022.
"We will likely see a good increase in revenue as fixed wireless access grows and existing wireless customers take advantage of the steep discount for fixed wireless access service," Luna said. "Fixed wireless and mobile wireless are now becoming enticing bundles."
Beyond Verizon, T-Mobile US Inc. is also poised for growth in fixed wireless.
After reporting 1.5 million fixed wireless home internet customers at the end of the second quarter, T-Mobile hopes to get to 7 million to 8 million fixed wireless subscribers by 2025.
"As you saw from Q2 results, we're well on track," T-Mobile President and CEO Mike Sievert said at the Goldman Sachs investor conference.
Faster, cheaper
As for T-Mobile's 5G wireless service, the company was recently recognized by wireless analytics group Opensignal Ltd. as the 5G global winner for both availability and reach. Opensignal reported that 5G users on T-Mobile's network spent the largest proportion of time with an active 5G connection, and they also found a 5G signal in the highest proportion of locations. T-Mobile saw a 98.9% improvement in 5G download speed between the first half of 2021 and 2022.
"We've won the scale and capacity game. We are the clear demonstrated 5G leader," Sievert said.
T-Mobile reported 723,000 postpaid phone net adds in the second quarter and 589,000 in the first quarter.
AT&T Inc. is also offering customers faster download speeds due to the rollout of key midband spectrum, according to Opensignal. The analytics company reported that AT&T users' 5G download speeds increased 34.5% since March, rising from 50 Mbps to 67.3 Mbps in September.
"AT&T has made significant progress in rolling out its 5G services in the mid-band, but it is still behind T-Mobile and Verizon," the report stated. "Compared to them, AT&T heavily relies on low-band spectrum to provide 5G connectivity to its subscribers."
AT&T reported 813,000 postpaid phone net adds in the second quarter and 691,000 in the first quarter.
While some analysts have attributed AT&T's growth to discounts on phones, AT&T President and CEO John Stankey said promotions are only part of the story.
"I know folks want to continue to go back and say, well, it's a high level of promotion that's doing it, and that's factually not correct," Stankey said at the Goldman Sachs event. "I think we've got a winning combination on distribution. I think we've seen our network improve dramatically. I think we've got a better-performing workforce than we've ever had right now ... and so I feel really good about our ability to manage that momentum."
