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Strategy Analytics: Price War Won’t Help T-Mobile Gain Share

Boston — Price wars are breaking out among U.S. cellular carriers, but carriers’ subscriber shares won’t change much between 2014 through 2018, Strategy Analytics contends in a new research report.

In fact, the carrier that started it all — T-Mobile — will show little subscriber-share gains through 2018 because of high churn rates, the report concludes.

In other findings, the research and consulting company forecast that continued growth in U.S. net subscriber additions through 2018.

The report also shows that growing prepaid subscriptions, though postpaid subscriptions will continue to dominate and carrier handset subsidies that will decline but not disappear.

In forecasting carriers’ market-share (see chart), the company noted that although competition is spurring service-price moves, so are customer demand and the advent of such network advancements as spectrum-efficient LTE technology, “without which such shifts in pricing would not make economic sense.”

“Despite the price war, we do not anticipate any major shifts in market positioning among the top four carriers in 2014, as Verizon Wireless and AT&T have shown they can leverage expanding LTE capacity and fight back with compelling offers that tap into consumer demand at the upper and middle tiers of the market,” said Susan Welsh de Grimaldo, wireless operators and networks director. “Newly freed capacity on their 3G networks will give more room to be price-competitive with entry-level and prepaid plans this year as well.”

Through 2018, Strategy Analytics forecasts that, among the top four carriers, Verizon Wireless stays on top and T-Mobile on the bottom in the number of subscribers, with Sprint gaining slightly more than one percentage point in share. “T-Mobile will take nearly 16 percent of retail gross adds in 2014 — on par with Sprint and not too far off market leader Verizon Wireless at 22 percent — [but] its high churn levels will mean it underperforms on share of net adds at only 9 percent compared to Verizon’s 47 percent.”

T-Mobile “will struggle to stay near 11 percent of the retail market, while Sprint will gain a percent to reach 15.5 percent by 2018, and the two leaders remain on top with Verizon Wireless at 33 percent and AT&T Mobility just under 25 percent,” she said.

As for industry subscriber growth, Strategy Analytics predicted “healthy growth” during the next five years. Overall net additions will grow from 7.5 million in 2014 to 15 million in 2018 across smartphones, other handsets, PCs, modems and tablets and other connected consumer electronics. Almost 200 million new LTE retail subscribers will be added between the end of 2013 through 2018.

Phil Kendall, wireless operator strategies director, sees “intense competition” by carriers “to have the best nationwide LTE network,” though he said, “Sprint is suffering as it works through network upgrades and plays catch up with LTE build.” Nonetheless, he said, Sprint “should be in good position to lower churn and regain some share losses by Q4.”

For its part, “T-Mobile will benefit as it adds more carriers (spectrum) into its LTE network this year and then into 2015 as it moves to add 700MHz spectrum for better in-building and rural coverage,” Kendall said.

 In another finding, the market research company forecasts that handset subsidies will decline but won’t disappear. “As the big carriers follow T-Mobile’s lead and offer installment payment plans for smartphones instead of large up-front subsidies, the average subsidy per handset connection will drop from $125 in 2013 to $106 in 2018 — but the subsidy model will not disappear in the U.S.”

In its prepaid forecast, the company said prepaid in 2014 will represent more than half of gross adds but will represent only 25 percent of total retail subscriptions and only 14 percent of carrier service revenues.