Can Telecom Carriers Sustain Postpaid Customer Gains In 2018?

U.S. telecommunications industry had a disappointing 2017. However, the signs of recovery were apparent from fourth-quarter 2017 with all four national wireless carriers gaining significant number of postpaid subscribers. Notably, postpaid customers are those who are billed monthly and also pay the most for services and devices. Consequently, postpaid subscribers are considered highly profitable to telecom operators.

What was Behind the Subscriber Gain?

The U.S. wireless market is almost saturated with a penetration rate of over 90%. This has resulted in cut-throat pricing competition among four national wireless operators in order to retain their own subscribers while snatching customers from rivals.

In the fourth quarter of 2017, T-Mobile US Inc. TMUS, Verizon Communications Inc. VZ, AT&T Inc. T and Sprint Corp. S together gained a total of 1.835 million postpaid customers. In addition, Comcast Corp. CMCSA, a cable MSO (multi service operator) which forayed into the wireless space recently, also gained about 180,000 postpaid subscribers.

Most of these newly acquired postpaid subscribers came from prepaid category. A large part of U.S. prepaid customers have shifted to costlier postpaid category in order to get seamless wireless connectivity. Additionally, robust U.S. economy, strong consumer sentiment and healthy job market also facilitated prepaid to postpaid transition.

Strong Consumer Sentiment, Solid GDP Outlook

Signs of a robust economy were evident once again with the release of strong consumer confidence data. On Apr 24, the Conference Board reported U.S. consumer confidence data for the month of April. Notably, the month's reading of 128.7 was a rebound from March's decline of 127.7. Further, it was better than the consensus estimate of 126.2. Modest hikes in interest rates failed to discourage discretionary purchases by individuals since wages and

Additionally, on Mar 21, the Fed raised GDP growth forecast for 2018 to 2.7% from 2.5% in December 2017. Likewise the 2019 GDP estimate has been hiked to 2.4% from 2.1% in December 2017. PCE inflation is projected at 1.9%, which is lower than the central bank's longer-run estimate of 2%.

Postpaid Subscribers Momentum to Continue

Addition of retail postpaid subscribers by wireless carriers is likely to continue in 2018. In addition to abovementioned three reasons, upcoming fifth-generation (5G) mobile networks will provide the primary impetus to the telecom industry. In this regard, Internet of Things (IoT) has the potential to emerge the numero uno factor for future growth of wireless subscribers.

The telecommunications industry is witnessing rapid technological improvements. Diversification into digital space like online streaming services, online content offering will certainly attract more customers to opt for quad-paly bundled services of wireless voice, video, data and on-demand online services.

So far, Verizon has declared first-quarter 2018 earnings results. The company added a commendable 260,000 retail postpaid connections. Postpaid smartphone net additions for the quarter were 220,000. Other wireless operators are also likely to report strong postpaid customer additions.

The chart below shows price performance of five above mentioned stocks.

Bottom Line

Telecommunications is one of the few industries to have witnessed rapid technological improvement even during the recession. Wireless networks to provide the primary impetus to the telecom industry. Innovative wireless products will encourage moving toward costlier postpaid services buoyed by robust economic conditions.

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