What’s turning out to be a miserable fourth quarter for some of the big phone companies looks more and more like a windfall for their customers. Carriers are warning that the period ending Dec. 31, encompassing the key holiday shopping season, won’t be as profitable as they had hoped. Their previously upbeat forecasts -- based partly on their backlog of orders for the Apple iPhone 6 and 6 Plus -- have given way to the reality of cutthroat price competition. Meanwhile, the price wars are delivering windfalls for consumers looking to purchase new plans for Christmas.
The steep competition in which carriers have been locked throughout 2014 may finally be catching up to big players such as Verizon Communications Inc. and AT&T Inc., which admit they expect fourth-quarter results to show lower profit margins and higher churn rates.
The Sprint Corp. and T-Mobile US Inc., the third- and fourth-largest carriers, respectively, continue to trail Verizon and AT&T by many millions of customers. These carriers in particular have been disrupting the mobile industry with frequent, undercutting promotions.
“The price war isn’t going to stop until the industry reaches equilibrium where all four carriers have enough subscribers to cover their fixed costs and earn an appropriate return,” New Street Research analyst Spencer Kurn told Fierce Wireless.
AT&T has also participated in the promotion bonanza, offering 15 GB of data for the price of 10 GB. Still, the carrier is feeling the pressure from carriers willing to undercut rivals even further. Chief Financial Officer John Stephens said at an investor conference Tuesday that the company expects subscriber growth in the fourth quarter, but that the number of customers leaving will be greater than it was in the same quarter a year ago, Dow Jones Business News reported.
AT&T posted a loss in the third quarter, blaming heavy competition from Sprint and T-Mobile. AT&T added 785,000 long-term wireless contracts in the period. The carrier also noted it had a considerable number of customers bringing their own phones onto the network, indicating that many of them bought devices from third parties.
Verizon, the most hesitant about providing promotions to lure customers, may be hardest hit by the fourth-quarter competition. The company expects diminished earnings in the period, although it says it has seen growth in customers choosing its Edge equipment installment plan. The number of its EIP subscribers doubled from the year-prior quarter, the firm said.
The network didn’t always embrace EIPs, but may do so more as competition continues to hit its bottom line.
Currently, the only carrier winning more customers than it’s losing is T-Mobile, having added 2.3 million customers during the third quarter. The carrier hopes this momentum will continue into the coming year. While T-Mobile has seen significant customer growth -- it said in June it has gained more than 17 million new subscribers since March 2013 -- it has been profit-challenged.
T-Mobile credits a bold marketing strategy, including its Un-carrier initiative, which frequently introduces new programs to entice customers. Most recently, T-Mobile launched Un-carrier 7.0, which allows customers to use Wi-Fi voice calling and texting, as well as in-flight texting. However, all its efforts in acquiring customers have actually translated into significant losses for T-Mobile.
Meanwhile, Sprint has lost customers in seven of the past eight quarters, despite a raft of promotions. New CEO Marcelo Claure’s primary goal is gaining customers, even if it’s at the expense of profitability. Upon taking the job, Claure said rivals could expect “very disruptive” rates from Sprint, which include its iPhone for Life, a $70 leasing option for the iPhone.
Still, several industry observers, including Root Metrics and Consumer Reports, have named Sprint as the worst nationwide carrier, with surveys indicating customers are disappointed in overall value and data service in particular. Sprint’s flailing is presumably what led to former CEO Daniel Hesse being ousted in favor of Claure.
Claure has said Sprint’s new priorities are reducing prices, improving the network, and decreasing operational costs. But Sprint’s problems run so deep, it could be several quarters before its progress shows up in earnings. “Until the network improves, the company will focus on providing the right value proposition. This is not necessarily lowest price,” Credit Suisse analyst Joseph Mastrogiovanni said in a research note in November.
Meanwhile, consumers will continue lapping up the bargains.