U.S. wireless operators completed their earning season of sorts when MetroPCS Communications Inc (NYSE:PCS) and United States Cellular Corporation (NYSE:USM) (U.S. Cellular) reported their quarterly results yesterday. While the large ones had already announced their financial performance, the entire U.S. wireless pack now stands with its report card for the latest period.
Among the smaller ones, Leap Wireless International, Inc. (NASDAQ:LEAP) had also reported its numbers. Going by the numbers, it does not look like a very good situation for the tier 2 operators to be in. Here is a closer look:
Both MetroPCS Communications and U.S. Cellular saw declines in their customer base. MetroPCS reported a 3.7 percent jump in quarterly revenues to $1.28 billion from the year ago quarter but saw its earnings drop to $31.67 million in the latest quarter, compared with $91.27 million in the comparable period of last year.
However, this was in line with the street’s expectations so the miss did not cause a panic selling situation. The market had developed an inkling of what to expect from MetroPCS Communications Inc (NYSE:PCS) and as such, the stock has been trending lower since last week.
The company closed the quarter with consolidated net subscriber loss of 93,237. A notable performance was recorded on the LTE deployment front as the carrier ended the quarter and the year with 2.2 million LTE subscribers. This represented an elevated 25 percent of its overall customer base, after increasing its LTE device portfolio during the year.
U.S. Cellular saw its revenues increasing marginally to $1.12 billion in the quarter but the operator turned to the red with a loss of $39.6 million. A comparable figure for fourth quarter of 2011 was a profit of $2.8 million. The company’s swinging to loss was not really unexpected as it has been busy rolling out its LTE network across the majority of its footprint. The carrier lost only 10,000 subscribers during the quarter but the market was not too pleased with the results and sent the shares crashing 5 percent.
Earlier, Leap Wireless – the smallest of the pack – also reported disappointing results. Its quarterly total revenue dropped 1.5 percent to $756 million from $ 767.4 million a year ago. Although it was able to trim losses to $74.3 million, from last year’s figure of $84.4 million, a 6 percent drop in subscribers during the quarter left investors worried. This amounted to a massive loss of 337,000 subscribers and points to the fact that management’s strategy of signing up high-value customers through sales of smartphones such as the Apple iPhone is not working out.
As the latest results indicate, these mid-market carriers are somewhat sandwiched between both ends of the market as they look to deploy their own LTE network but lack the financial muscle to pull it off themselves. At the same time, their bigger rivals continue to snatch consumers on the back of better technology and deeper pockets.
Do you know which under-the-radar stocks the top hedge funds and institutional investors are investing in right now? Click here to find out.
This further corroborates the market’s view that smaller players often do not have bright future in the capital intensive businesses. While MetroPCS’ combination with T-Mobile is a case in point, it is no secret that Leap Wireless is still trading at such high levels because it is a takeover target.
However, another round of industry consolidation appears unlikely anytime soon as most operators have already placed their bets. Over the next few quarters, Sprint Nextel Corporation (NYSE:S) and T-Mobile will be progressing with their planned mergers with Clearwire Corporation (NASDAQ:CLWR) and MetroPCS Communications Inc (NYSE:PCS) respectively. Having already faced regulatory hurdles with its attempt to buy T-Mobile, AT&T Inc. (NYSE:T) (and by extension Verizon) would be interested in venturing another adventure