The fourth quarter of 2017 earnings season is drawing to an end for the telecommunications segment. With results from four national telecom carriers, Verizon Communications Inc. VZ , AT&T Inc. T , T-Mobile US Inc. TMUS and Sprint Corp. S already on board, a study of their key financial and operating metrics will be interesting.
Except T-Mobile US, the other three companies wireless services revenues declined year over year in the reported quarter. This can primarily be attributed to adoption of several unlimited data plans by Verizon, AT&T and Sprint in order to counter T-Mobile US' data plans. Moreover, Verizon and T-Mobile US' wireless service revenues improved sequentially, while AT&T and 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, along with no annual service contract, garnered significant market traction.
In the wireline front, Verizon's services revenues increased year over year. However, services revenues decreased for both AT&T and Sprint. Verizon stated that extensive deployment of fiber network is going to raise wireline revenues in the future. We expect the same for AT&T and Sprint.
For the wireless segment, adjusted EBITDA margins improved on a year-over-year basis for both Verizon and Sprint impressively. For Verizon and Sprint, it increased from 36.9% to 39.8% and 40.3% to a significant 49.1%, respectively. However, for AT&T, operating margin for domestic wireless operation decreased from 35.7% to 32.7%. For T-Mobile US, adjusted EBITDA also declined a percentage point from 36% to 35%.
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 1,174,000 (up a whopping 98.6% year over year) retail postpaid customers but lost 189,000 (compared with a loss of 9,000 in the year-ago quarter) retail prepaid customers. Importantly, net phone additions of 431,000 included 647,000 smartphones, compared with 456,000 smartphone additions in fourth-quarter 2016.
Meanwhile, AT&T's domestic mobile operation added a net 541,000 (up a little over 4%) postpaid connections and 140,000 (down 65.5%) prepaid connections. It is to be noted, AT&T lost 147,000 satellite TV customers and 60,000 U-verse TV customers. However, it gained 368,000 DIRECTV NOW connections.
Sprint added a net 256,000 (down 36.8%) postpaid subscribers and 63,000 prepaid customers against a loss of 460,000 prepaid customers in the prior-year quarter. However, postpaid phone net addition was 184,000, down 50% year over year.
T-Mobile US added a net 891,000 (down 4.5% year over year) postpaid phone customers, 181,000 (down 31.4%) postpaid mobile broadband customers and 149,000 (down 72.5%) prepaid customers.
Churn Rate and ARPU
Verizon, AT&T and T-Mobile US improved postpaid churn rate. However, the postpaid churn rate worsened year over year for Sprint. The postpaid churn rate improved from 1.10% to 1.00% for Verizon, 1.16% to 1.12% for AT&T and 1.28% to 1.18% for T-Mobile US.
Meanwhile, for Sprint, it worsened from 1.67% to 1.80%. Importantly, for the national wireless carriers, average revenue per user (ARPU) has declined. This was primarily driven by adoption of unlimited data plans offering a lot of services free of cost.
We have taken a consolidate chart of these four stocks for last three months to show how investor sentiments have changed from just before the announcement of earnings results to date. The chart shows that Verizon, AT&T and T-Mobile US have gained 11.9%, 7.1% and 2.2%, respectively, while Sprint has lost 12.8%.
Will the Momentum Continue in 2018?
All four national wireless carriers have gained substantial subscribers in the fourth quarter of 2017. We believe this trend will continue in 2018 as the industry is moving toward a transition from 4G to 5G standard for which initial deployment will start this year.
Robust U.S. macro-economy and growth-induced policies taken by the Trump administration are other positives. Moreover, wireless operators are quickly moving toward digital media platform offering online TV streaming services, resulting in innovative product differentiation on the part of wireless carriers.
Our View and Zacks Rank
After taking a closer look at the fourth 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. Notably, AT&T has also performed well after its lukewarm performance in the previous quarter.
Our view is also established while considering the Zacks Rank. Verizon and T-Mobile US sports a Zacks Rank #2 (Buy) while AT&T and Sprint carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.