Barclays Forecasts Network Spending

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2015-10-14Barclays analyst Amir Rozwadowski expects signs of “spending improvement” to emerge during the quarter, as all carriers seemed focused on ensuring network quality. He said both Verizon and T-Mobile are expected to retain their steady investment strategies leading to a stronger second half of 2016. “Our checks suggest a more normalized wireless spending environment should emerge out of AT&T in 2016. We believe Sprint remains focused on its efficient network design strategy, balancing capital preservation with optimizing the deployment of its unique network assets.”

If his hunches are correct, the two biggest revenue getters during the last quarter will again be in the limelight. “We expect T-Mobile and Verizon to continue last quarter’s performance as the leading share gainers,” observes the Barclays analyst in an overview of the telecom industry issued Tuesday. “The combination of comparatively lighter year-over-year competitive pressure coupled with the impact of various retention initiatives should lead to fairly stabilized-to-healthy operating metrics across the board as well,” Rozwadowski wrote. “The key, in our view, is to determine who has the broadest set of tools to drive earnings improvement—in other words, who’s got the most shots on goal.”

He said to expect T-Mobile and Verizon to retain their position as share gainers. While T- Mobile’s recent pre-announcement provided the latest data points supporting its position as the leading share gainer, “we expect Verizon to follow on the back of its own healthy promotional cycle.” He added “Sprint is poised to deliver its first quarter of positive phone only postpaid net adds as well. AT&T’s more muted reaction to the competitive promotional cycle will likely result in postpaid phone only net losses for 3Q.”

Telecom carriers are susceptible to the same churn flu that cable companies and health care insurers get this time of year. So, the analyst recommends factoring in a slew of customers switching their business to other carriers this quarter, thus “driving a modest sequential uptick across all the major carriers.” Margins should, however, continue to benefit due to mix shift (i.e., more handset financing plans), cost reductions, and less pronounced promotions. “We believe T-Mobile’s year-over-year improvement will likely be a notable standout.”

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October 14, 2015 |
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