Here’s What America’s Major Wireless Providers Are Doing Wrong (and Right)!

Illustration by Chelsea Pieroni

Just as smartphone users in the U.S. are fiercely divided based on their allegiances to brands and operating systems, they’re also locked in an unending battle over which wireless carrier is superior.

Verizon (NYSE:VZ) users seem to know they’re the best — after all, they do have the biggest network, and Americans place a lot of importance on size.

AT&T (NYSE:T) users are pretty split — half of them complain about dropped calls, while the other half is fiercely loyal to the number-two carrier.

At number three, Sprint (NYSE:S) relies heavily on its early adopters, who appreciate good customer service over a large 4G network or the latest phones.

And rounding out the top four, T-Mobile (NYSE:TMUS) remains the top carrier for the patient and budget-conscious, whose egos don’t require that they be the first to get their hands on a new phone, or that they can brag about always having a signal (even in the middle of the woods, or on the ground floor of a Manhattan skyscraper).

Illustration by Chelsea Pieroni

The reason each carrier survives is because none of them has it all — Verizon’s 4G network may be the largest, but in many cities around the country, it’s by no means the fastest. And Verizon’s iPhone (NASDAQ:AAPL) users have to choose between calling and surfing, because for the time being, at least, they can’t use data while on a call.

No one complains more about dropped calls than AT&T users, but the carrier’s 4G network is fast, and iPhone users can talk and surf at the same time. So, too, can T-Mobile’s iPhone users, who also save a lot of money on their plans, which now come without that pesky 2-year contract. Of course, T-Mobile only just got the iPhone a full six years after AT&T — and owing to the network’s frequency, T-Mobile users notoriously lose bars in skyscrapers and basements.

Sprint users are pretty pleased with the carrier — it has truly unlimited data, a concept Verizon and AT&T have yet to grasp — but while the carrier has 4G LTE in a respectable 110 U.S. markets, that’s nowhere near as many as the nation’s number-one and number-two carriers. In fact, Verizon brought 4G LTE to its 500th market — Parkersburg, West Virginia — in June, making its high-speed data network “substantially complete,” with 4G coverage for 99 percent of its network.

When choosing a network, users have to consider a number of factors — phones, pricing, coverage, data speeds, hidden fees, customer service — and decide what’s most important to them (and what they can live without), because as it stands, no carrier has it all. And that’s why all four major players still remain very much in the game.

Illustration by Chelsea Pieroni

The pre-merger T-Mobile USA finished the March quarter this year with approximately 34 million subscribers, adjusted EBITDA of $1.2 billion, and $4.7 billion in revenue — and that was before the carrier got the iPhone, which the company is offering at a discount to competitors, along with a cheaper Unlimited plan. In the same quarter, Sprint’s 53.9 million subscribers helped the company make $7.1 billion in wireless platform revenue (the company reported $8.79 billion in total revenue for the quarter).

AT&T reported total wireless revenues, which include equipment sales, of $16.7 billion, and wireless service revenues of $15.1 billion in the January-March 2013 quarter. The firm had roughly 67 million postpaid phone subscribers, of which 72 percent were smartphone users.

And the big Kahuna — Verizon — reported total wireless revenues of $19.5 billion on 34.9 million subscriber accounts, accounting for “an industry-leading 98.9 million retail connections, with 93.2 million postpaid, and 5.7 million prepaid,” according to the company’s earnings call.

Illustration by Chelsea Pieroni

Each earnings report includes an in-depth breakdown of what the companies are doing right and wrong — how they’re growing their subscriber bases, how they’re making improvements to their networks that will eventually help grow their subscriber bases, or how they’ve grown revenue despite a shrinking subscriber base.

In order to stay competitive, Sprint is hurriedly trying to grow its 4G LTE network, which only launched in 2012. But while the move will hopefully draw in more customers, or at least stem losses to Verizon and AT&T, it’s also expensive, and has been taking its toll on profits. Adjusted earnings per share were negative in the last quarter. And despite subscriber growth, revenue was actually down 2.35 percent from the previous quarter.

Illustration by Chelsea Pieroni

Each company’s ability to remain competitive relies on its superiority in at least one core concern among wireless subscribers. And boasting superiority in two or more areas can mean the difference between first and fourth place. Just look at T-Mobile: the carrier beats all its competitors when it comes to pricing. Its prepaid and postpaid plans are cheaper, and even the iPhone comes at a discount when all is said and done. But pricing is the only thing keeping T-Mobile in the game at this point. Customer service is good, but Sprint is the carrier with J.D. Power & Associates’ “highest in satisfaction” award for the fourth year in a row. AT&T has the fastest 4G network, but not the biggest, while Verizon has the biggest, but not the fastest.

So investors asking themselves where they should place their bets would be smart to look not just at previous earnings reports and trends, but at the same information wireless subscribers use in choosing a carrier.

Smartphones are the future — not only are they making up an increasingly larger portion of wireless subscriptions in the U.S., but they also bring in higher revenue per customer, thanks to costly data plans. That’s why, right now, 4G LTE coverage is probably the biggest factor for customers. It’s no coincidence that the carrier with the largest 4G network also has the most subscribers, while the carrier with the fourth-largest 4G network also comes in fourth in subscribers.

But how long will this trend hold up? Verizon’s 4G network is all but done growing, which means the other carriers are now playing catch-up. If and when they grow their networks to Verizon’s size, what will the current number-one do to stay on top? Cut prices? Improve speed? Because if AT&T can retain current speeds while growing its network, Verizon users may choose to switch. And if T-Mobile can offer the same coverage for a fraction of the cost, Verizon will likely see its subscriber base drained.

What do subscribers want? What are they going to want? And what carrier is going to give it to them, in the short-term and in the long-term? These are the questions investors should be asking. Having all the facts — knowing who is doing what, and the how and why — takes a lot of the guesswork out of making investment decisions.

Here are some key metrics for the nation’s four largest carriers in a handy cheat sheet:

Verizon

Sprint

AT&T

T-Mobile

Number of Subscribers 98.9 million 53.9 million 67 million (postpaid) 34 million
Number of 4G LTE Markets 500 88 291 (200 million pops) 7 major metropolitan areas (157 million pops)
Projected growth of 4G LTE network Plans to double capacity using radio airwaves 170 more cities in coming months 270 million pops (end 2013) 200 million pops (end 2013)
Number of iPhone users activated 1st quarter (Jan-Mar 2013) 4 million 1.5 million 4.8 million Didn’t have the iPhone in 1st quarter.*
When did carrier first get iPhone? 2/10/2011 10/14/2011 6/29/2007 4/12/2013
Smartphone sales in 1st quarter 7.2 million 5 million 6 million N/A
Cost of unlimited talk, text, and data No unlimited data plan. Largest is 8GB, will cost $130/month. $110 No unlimited data plan. Largest is 5GB, will cost $140/month. $70/month
How much data before throttling with the unlimited  plan? 2GB for 3G customers, no throttling on 4G Other plans may receive prioritized bandwidth availability. No unlimited data plan. Largest is 5GB. Throttling begins at 3GB. No throttling.

*While T-Mobile didn’t get the iPhone until after the January-March quarter ended, the carrier did report reaching 500,000 iPhone activations as of May 7, only 26 days after it first began offering the phone.

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