Has the mobile balance shifted in T-Mobile and Sprint’s favor? UBS thinks so

The time is ripe for T-Mobile and Sprint to take market share away from the dominant megacarriers in the U.S. mobile market, according to UBS Telecom analyst John Hodulik. In a research note released today, Hodulik said we’re at the confluence of a several trends, from over-saturation of phone subscribers to parity in 4G networks, that could turn the tables on giants AT&T(s t) and Verizon Wireless(s vz)(s vod) and lead to a potential renaissance for the industry’s two whipping boys of recent years, T-Mobile(s tmus) and Sprint(s s).
I do have one reason to be skeptical of Hodulik’s analysis, but I’ll get into that below. First, let’s take a closer look at Hodulik’s very thorough argument:
T-Mobile store logoThe second quarter was a turning point for T-Mobile, seeing its biggest growth spurt in four years. T-Mobile added 1.1 million new subscribers, beating out its three larger competitors, and that’s without factoring the 8.9 million subscribers it gained from merging with MetroPCS.
T-Mobile also saw its churn rate – the percentage of customers that leave – decrease, while the overall industry churn remained flat. T-Mobile managed to gain share from all of the other big three, Hodulik said, and that trend only accelerated after the quarter ended and T-Mobile launched its Jump smartphone trade-in program. According to UBS’s calculations, in the final week of July T-Mobile was gaining two subscribers from AT&T and Sprint for every one it lost to those carriers.
Sprint conversely had one of its most dismal quarters, shedding 2 million subscribers. But that was mainly due to the sunsetting of its Nextel iDEN network, basically leaving millions of subscribers to find a new provider. Now that the Nextel albatross finally has fallen from its neck, Sprint is now ready to compete without any handicap, helped along by SoftBank’s billions in investment dollars, Hodulik said.
UBS LTE progress US carriers
There are bunch of changing market factors Hodulik cited that will help T-Mobile and Sprint in their battle against the two megacarriers:

  • First, Sprint and T-Mo’s LTE rollouts are catching up to the competition, eliminating a key competitive advantage AT&T and Verizon have enjoyed for the last two years. In particular, Sprint is actually showing signs of building the mammoth 4G networks it promised years ago, which would give it enormous amounts of LTE capacity.
  • Second, postpaid phone growth is stalling. UBS is forecasting that prepaid growth will begin to accelerate once again as customers switch from postpaid to contract plans, lured by cheaper prices coupled with more attractive mobile data plans. That can only benefit Sprint and T-Mobile.
  • Third, the competitive battle in the U.S. has become a war attrition as evidenced by Chetan Sharma Consulting’s report earlier this week. The number of overall connections in the U.S. is barely increasing so in order to grow carriers are stealing subscribers away from one another. According to Hodulik, that presents a unique advantage for Sprint and T-Mobile who have shown they can highly competitive in both pricing and promotional offers. It’s a question of whether AT&T and Verizon can match them.

UBS postpaid net adds US carriers
Hodulik is a highly respected telecom analyst, and he paints a very compelling picture of how the U.S. mobile industry could shake out in the next two years. But my gut tells me that his predictions might be a bit premature. While many of the trends Hodulik has spotted span much more than a three-month period, he’s basing much of his analysis on carriers’ performance in the second quarter. And frankly Q2 was a pretty messed up quarter for one big reason.
We saw the complete and total shutdown of a nationwide mobile network in Q2 – an event we only witness once or twice in a decade. More than a million Nextel and Boost Mobile subscribers suddenly found themselves without a network to connect to as of June 30, so naturally many of them gravitated to the other carriers. Since both T-Mobile and Sprint are the lower-priced operators, many of those homeless subscribers naturally wound up at T-Mobile. It still remains to be seen whether T-Mobile’s big Q2 surprise was the beginning of its big recovery or an anomaly.
Don’t get me wrong. I agree with Hodulik entirely that T-Mobile has momentum and Sprint could quickly build some. But I also want to wait a few more quarters to see if T-Mobile’s assault at the Verizon/AT&T citadel is really working.
T-Mobile image courtesy of Flickr user swruler9284