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T-Mobile Earnings: Leasing, Free-Video Impact, User-Growth Eyed

T-Mobile US ( TMUS ) reports earnings early Wednesday for the first time since launching its Binge On mobile video service in November, as analysts await guidance on how the aggressive promotion has impacted subscriber growth, data service revenue and capital spending. Analysts are also expecting earnings-call commentary on how phone leasing plans are impacting revenue and EBITDA (earnings before interest, taxes, depreciation and amortization). “With (the customer) base transitioning to leasing, equipment cost is now treated as depreciation expense and, therefore, excluded from EBITDA. As such, we expect T-Mobile to provide both reported and cash EBITDA guidance for 2016,” said Nomura analyst Jeffrey Kvaal in a research report. T-Mobile, controlled by Deutsche Telekom ( DTEGY ), is expected to report a 1% year-over-year gain in revenue, to $8.2 billion, with EPS ex items rising 28% to 15 cents per share. The company’s Q3 revenue missed estimates, as leasing plans lowered equipment revenue. While T-Mobile in 2013 was first to offer consumers monthly installment payment plans for purchasing mobile phones, it has followed Sprint’s lead into leasing plans. With leasing plans, wireless firms retain ownership of the devices and revenue is recognized over the terms of the leases, usually 18 months or longer. T-Mobile preannounced at a Jan. 6 conference that it added 917,000 postpaid phone subscribers in Q4.   Verizon Communications ( VZ ) in January reported that it added 449,000 postpaid phone customers — those billed monthly and more lucrative than prepaid users — while Sprint ( S ) added 366,000. AT&T ( T ) lost postpaid subscribers for the fifth quarter in a row, shedding 342,000. At the same Citigroup conference on Jan. 6, T-Mobile executives said they expect to generate more free cash — revenue from operations minus capital expenses — in 2016. T-Mobile is expected to be a bidder in an upcoming government auction of radio spectrum now used by local TV broadcasters. Along with its “Binge On Demand” promotion that provides free video streaming. T-Mobile in November also doubled its data allowances on many plans.  T-Mobile, though,  raised prices for all plans above entry-level. Many analysts expect its recent moves to boost its monthly ARPU, or average revenue per user.

TV Auction View: AT&T, VZ Top Bidders; Comcast In; Google, AMZN Out

JPMorgan is bullish on the upcoming “Broadcast Incentive Auction,” which will free up prime, low-frequency airwaves owned by local TV broadcasters for wireless data services. Naysayers continue to contend that the Federal Communications Commission faces many challenges in pulling off a successful auction, which for now is scheduled to start late next month. One risk is that broadcasters might drop out of the auction if they determine that bidding prices are disappointing. The auction is key for T-Mobile US ( TMUS ), which needs spectrum.  AT&T ( T ) and Verizon Communications ( VZ ) own most of the available low-frequency spectrum, in which waves travel longer distances, among other advantages over higher-frequency spectrum. JPMorgan expects at least 70 MHz of airwaves, and possibly more, to be auctioned. The key is that broadcasters that own two local TV stations will sell off airwaves from one and keep spectrum from the other, says JPMorgan. “We estimate that 70-100 MHz will be auctioned, for $25 billion to $35 billion,” said JPMorgan in a research report. Twenty-First Century Fox ( FOXA ) and  CBS ( CBS ) are expected to sell airwaves in some markets. While Comcast ’s ( CMCSA ) cable company is a potential bidder , it also owns media firm NBCUniversal, a likely seller of airwaves. Smaller local TV station owners include  Sinclair Broadcast Group ( SBGI ) and  Gray Television ( GTNA ). “We view FOX and CBS as best positioned to monetize duopoly affiliates in large markets, followed by Comcast and Sinclair,” said JPMorgan. Walt Disney ( DIS ), which owns ABC, is not expected to sell airwaves. Private investment firms such as Columbia Capital are eyeing the auction, says a Washington Post report . JPMorgan predicts cable TV firms will show up, but it doubts that Internet giants will bid. “We expect that AT&T, Verizon, and T-Mobile will be the biggest bidders ($21 billion-$30 billion cumulative spend), that Sprint ( S )/ SoftBank ( SFTBY ) will not register, and Dish Network ( DISH ) will at most be an opportunistic buyer,” said the JPMorgan report. “We estimate Comcast, potentially in partnership with other cable companies, could spend $3 billion-$5 billion, and private equity funds in aggregate could spend $1 billion-$2 billion. “We do not expect digital economy players like Alphabet -Google ( GOOGL ) or Amazon.com ( AMZN ) to bid, though they can never be ruled out.”

Facebook Net Neutrality Set Back, Verizon Tests Regulatory Waters

In a closely-watched test case of net neutrality rules in emerging markets, India’s telecom regulators dealt Facebook ( FB ) a blow on Monday, deciding that wireless service providers may not engage in deals that subsidize content as part of free mobile-data programs. The decision from the Telecom Regulatory Authority of India (TRAI) impacts Facebook’s “Free Basics,” which provides mobile users free access to a text-only version of the social network firm’s Web content. India’s wireless firms have six months to phase out data plans that charge different rates for Web access, depending on the content. Facebook said in a statement that it’s “disappointed with the outcome.” In the U.S., the Federal Communications Commission last year extended net neutrality rules to wireless networks for the first time. Internet service providers are challenging the FCC’s rules in federal court. A court decision is expected in April. Net neutrality rules bar ISPs from throttling, blocking or prioritizing Web traffic. Verizon Communications ( VZ ) on Friday said that videos on its new Go90 mobile service will not count against data plans for its postpaid wireless subscribers. Verizon’s move “highlights how mobile video has become the new frontline in wireless competition and could hasten the convergence of the cable and wireless industries,” said UBS analyst John Hodulik in a research report published on Monday. “The FCC will surely look hard at this strategy,” he added. Verizon also recently launched its FreeBee sponsored-data program. Under the FreeBee business model,  companies would pay Verizon a fee so that users of their wireless apps could access Web content without their data consumption counting toward monthly limits. Verizon’s introduction of the FreeBee service follows a  T-Mobile US ( TMUS ) rollout of the “Binge On” video streaming service. Binge On exempts apps such as  Netflix ( NFLX ) and  Time Warner ‘s ( TWX ) HBO from monthly data caps. T-Mobile’s Binge On, however, does not involve payments from content companies to T-Mobile. With FreeBee, content companies pay for their traffic to be exempted from monthly data limits.