Separating the wireless haves from the have-nots

With all the major U.S. carriers having reported their third-quarter earnings, the scales are clearly tipping in favor of the big two, Verizon Wireless (NYSE:VZ, NYSE:VOD) and AT&T (NYSE:T). They are pulling away from the pack in an ever widening split between the wireless haves and the wireless have-nots, according to Bernstein Research analyst Craig Moffett.

“The market is tipping increasingly towards a zero-sum share gain,” Moffett wrote in a research note today. Sprint (NYSE:S), T-Mobile (NYSE:DT), MetroPCS (NYSE:PCS) and Leap Wireless (NASDAQ:LEAP) are all losing subscribers in their mature markets, while AT&T and VZW — although hurting in many key metrics continued to add subscribers throughout Q3.

“The U.S. wireless industry grew service revenues at a 4.2% growth rate over the 12 months through September 30th, the first reacceleration in a year,” Moffett wrote. “Total subscriber growth dipped to 5.3% on a trailing 12-month basis, and ARPU growth — despite all that growth in wireless data — is still a negative — 1.0% for the industry. Nevertheless, the aggregate result was something of an improvement.”

The improvement was clearly driven by AT&T and VZW more so than their smaller competitors. Even so, the postpaid business of both carriers lost share to prepaid in the quarter. In total, postpaid additions declined 47% to 1.4 million year-over-year, while prepaid gains were up 60.8% from Q3 to 1.4 million. The industry is aligning itself into two camps – pre or postpaid — but even within the prepaid market, growth is bifurcating between the very low pay-as-you-go plans and the higher-end all-you-can-eat plans, Moffett noted. He estimated that unlimited prepaid subs comprise 5.2% of the total industry and 24% of the prepaid and reseller segment, which grew at 51.3% compared to the 7.3% growth of the traditional pay-as-you-go sub-segment.

“The stark divergence between the haves and have-nots is clearest in financial reports,” Moffett wrote. “While margins have gradually expanded at Verizon and have recovered from a short-term iPhone trough at AT&T, they have dropped precipitously at Sprint. At T-Mobile, margins have been stable, but remain much, much lower than at Verizon or AT&T.”

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