Riding on the 5G wave, increasing vaccination rates and improving consumer sentiment, the second quarter numbers for 2021 are expected to be robust for the US carriers and their equipment sales.
T-Mobile: With 300 million Americans covered by its low-band 600MHz spectrum and another 150 million by its mid-band 2.5GHz spectrum, T-Mobile continues to own early 5G bragging rights. By the end of 2023, the carrier expects to have over 300 million covered by its mid-band 5G. Medium-term, T-Mobile will lead the US 5G rollout race.
This 5G lead has helped T-Mobile continue to dominate the net add race, something we think will continue in Q2. Free Netflix, 55+ promos and other ‘un-carrier’ moves continue to keep churn in check. T-Mobile has also done a formidable job transitioning subscribers from the Sprint network to the T-Mobile network — over 60% of Sprint subscriber traffic has now shifted to the T-Mobile network. The integration cost savings have also been above expectations. The carrier announced an expected $7.5 billion of P&L run rate savings, 25% higher than the original projection at the time the acquisition went through. Metro by T-Mobile also continues to see strong subscriber growth, particularly in rural areas. The partnership with Walmart will help. Finally, new push into fixed wireless access could add incremental revenues and help brand momentum. This is probably not meaningful until 2022-2023, but T-Mobile’s goal is to have 8 million fixed wireless subs by the end of 2025.
AT&T is in the process of unloading some big-ticket media, which will help the carrier focus on 5G rollouts, building its subscriber base, adding new 5G services, and growing broadband. During the quarter, we see AT&T winning the port war against Verizon. Its ‘same pricing for all’ campaign to upgrade its base has continued on TV and other media. It is not the only carrier doing this now, but it remains the loudest.
Equipment revenues were up 45% YoY in Q1 2021 and we expect to see similar comps in Q2 2021. Bestseller devices during the quarter were the iPhone 12 Pro Max, iPhone 12, and iPhone 11. AT&T won its share of iPhone and premium Android subscribers in Q2.
On the prepaid side, AT&T’s Cricket Wireless has surpassed 13 million subscribers and continues to grow in rural and Hispanic regions. The Samsung Galaxy A01 and Moto G Power were top sellers within prepaid.
Verizon matched AT&T’s promos for upgraders and switchers, upgraders being the key. This helped the quarter and especially June sales. We expect very low churn for Verizon and potentially some better B2B device spending.
The near-term focus for Verizon is closing its acquisition of Tracfone. Verizon has been a distant third behind T-Mobile and AT&T within prepaid with only about 4 million subscribers—about 5x smaller than T-Mobile and AT&T. To get the deal over the line, Verizon has recently made promises to keep low-end service costs frozen for three years and will continue to support government programs such as Lifeline.
US Cellular may have been challenged within postpaid, but its renewed focus on the prepaid, business, and government segments will likely help the quarter. There have been limited retail changes, but a more focused approach on digital/online sales is helping, maybe not in terms of overall subscribers but in margins. Counterpoint churn data shows AT&T stole the most subscribers from US Cellular during the quarter.
Return of the low-end of the market: COVID-19 disproportionately affected low-end volumes. While prepaid is seeing some mixed signals, we expect solid results from Metro by T-Mobile and Cricket Wireless. Boost is an exception, and we expect net add losses here. Mint Mobile, Visible and Consumer Cellular are adding to competition with their niche appeal. Tracfone had a poor quarter losing 549,000 subscribers — it noted some prepaid to postpaid migration as vaccinations progressed and consumer confidence improved.
Device shortages are affecting prepaid, especially the low inventory of Samsung A-series, which has been hurt by both component shortages and the COVID-19 spike in Vietnam, where much of the OEM’s manufacturing is done.
Compared to Q2 2020, this year’s Q2 is a strong rebound quarter. 5G sell-through is clearly over 50% of total sales, and the second half of the year will see US carriers continuing to push to upgrade the base to unlimited 5G service plans.
