Scalper1 News
Wireless trends point to strong first-quarter profits at AT&T ( T ) and Verizon Communications ( VZ ), says UBS, though Apple ’s ( AAPL ) expected launch of the iPhone 7 in the fall looms as a wild card for phone upgrades. UBS analyst John Hodulik says the phasing out of wireless contracts at AT&T and Verizon, along with the shift to monthly installment plans for mobile phone purchases, has boosted profits. The EIP (equipment installment plans) boost earnings by booking equipment revenue on the date of sale, though monthly payments may continue for 20 months or more. Neither AT&T or Verizon offer phone leasing plans, though T-Mobile US ( TMUS ) and Sprint ( S ) do. Less aggressive marketing by Sprint in early 2016 also bodes well for the wireless industry, said Hodulik in a report. “We believe Sprint’s recent commentary regarding its focus on free cash flow generation and subscriber stability, combined with our outlook for fewer upgrades, set the industry up for a few quarters of solid earnings results,” wrote Hodulik. “These trends should continue until the expected Apple iPhone 7 refresh later this year, whose impact on volumes remains a wildcard. … According to Gartner data, Apple’s iPhone accounts for around 50% of premium smartphone sales in the U.S. or roughly one-third of all phone sales.” Verizon is slated to kick off Q1 telecom earnings when it reports April 21. Consumers have been upgrading to new smartphones at a slower pace, says Hodulik. “Subscribers are electing to hold their devices longer and save money once the handset is fully paid off,” he added. “Postpaid subscribers now keep their devices for 3.3 years on average, up from 2.8 years in 2011. This is putting pressure on upgrade rates, which is in turn driving lower disconnects and fewer gross subscriber adds. We believe this will be a key theme for Q1 earnings, driving another strong quarter of profitability for the sector, especially at AT&T and Verizon.” Scalper1 News
Scalper1 News