Wireless POV

How to estimate AT&T Prepaid Subscribers, ARPU, and Churn

david — Tue, 10 Mar 2009 18:03:21 +0000

As an analyst in the wireless industry, I was often asked to compare KPIs (Key Performance Indices - subscriber counts, ARPU, Churn, etc.) of various carriers. Unfortunately, most carriers earnings reports do not provide breakout of KPIs for their prepaid and/or reseller (aka. MVNO) businesses. Unless they are from a pure-play prepaid provider like Virgin Mobile (now less true with their acquisition of Helio) or Tracfone, prepaid KPIs are not easy to come.

In this article, I will share the method I use to estimate prepaid subscriber count, prepaid ARPU, and prepaid churn for AT&t using its latest 4Q 2008 earnings report.

First, you will have to be fairly familiar with AT&T’s Statement of Segment Income — GAAP for the Wireless segment [master.xls]. Under the tab, Wireless Segment, AT&T provides total Subscriber count, Net adds, Postpaid sub count, churn and its ARPU. This is great especially AT&T is doing quite well in its postpaid business. But if you want to get to Prepaid/Reseller ARPU and churn, you’ll have to do some math. Let’s calculate AT&T’s Prepaid + Reseller :

Subscribers (row 40, 41)
ARPU (row 59, 60)
Churn (row 51, 52)

You can download the work file here in Excel format (see the red Wireless Segment tab).

Prepaid Subscribers

All you need is ONE reasonable assumption, the number of Reseller subscriber in 4Q 2008 to get to the estimated prepaid subscriber count. Fortunately, we can make one fairly easily since most of their reseller subscribers come from the Tracfone, the largest MVNO in the US. As of 3Q 2008, Tracfone reported 10.449M subs. If in 4Q 2008, Tracfone added the same number of subs in as in 4Q 2007, then 10.499M + 711k = 11.16M (see cell I41). AT&T has 77M total subs, 60M postpaid subs, and 11.16M reseller subs (est). So AT&T prepaid subscriber count is 77M - 60M - 11.16M = 5.7M. We will use this estimate for the rest of the calculation.

Prepaid/Reseller Churn

To estimate the churn, you first calculate the number of disconnects for total subscribers and postpaid subscribers using the reported churn rate (see row 53-55). As you can see, it looks like the disconnects for Prepaid + Reseller segement would have to be 1.479M for AT&T to have a consolidated total churn of 1.6%. Hence, the Prepaid + Reseller churn is about 3.1%. [Gut check: Tracfone's last reported churn rate was 3.6% in 4Q 2007 and 3.8% in 3Q 2008.] If AT&T’s composite Prepaid + Reseller churn is 3.1% and the Reseller churn (Tracfone’s churn) is ~3.8%, the true AT&T Prepaid churn rate is likely lower than 3%. This would be quite good for US Prepaid providers.

Prepaid + Reseller ARPU

Estimating ARPU can be done in a similar fashion. The only thing you need to do is read the Investor Briefing (the pdf file they released). It states that the Postpaid ARPU was $59.59 in 4Q 2008. With that plus the total service revenue, you can back out the postpaid only service revenue which you can use to calculate the remainder of the service revenue for the prepaid and reseller segments. The Prepaid + Reseller service revenue was 955M so using the Prepaid + Reseller subscriber count for 3Q and 4Q we calculated earlier, you can estimate the ARPU. It turns out the Prepaid + Reseller ARPU was about $19.27. The true Prepaid-only ARPU for AT&T is likely to be much higher. Tracfone (reseller) reports ARPU of $11 in 3Q 2008. Don’t forget that this is at the retail level. As a wholesaler (AT&T in this case), the ARPU AT&T takes is likely in the $4-6 range depending on the price of the wholesale minute which can range from $0.03-0.08 per minute based on a Tracfone average of 78 MOU (minutes of use).

I hope this has been helpful in estimating AT&T’s prepaid KPIs . All of these estimates are done using assumptions and should be use for “back-of-the-envelope” calculations only.

Economy and CPGA Power Virgin Mobile

arif — Tue, 10 Mar 2009 04:50:50 +0000

Virgin Mobile’s recent earning report and the associated announcements point towards a renewed future for prepaid and MVNO wireless programs in the U.S.

While many key components contribute towards the recent surge in this wireless segment, the current economic conditions certainly play an important role on several fronts.

Consider the recent flat monthly prepaid or pay as you go rate products announced by Virgin, Boost and others. But many existing prepaid customers, who make up the majority of Virgin subscribers, spend less than half of the going flat rate plans recently announced for their wireless voice and data needs. Therefore, there is little chance in this economic climate that these subscribers would upgrade their plans and double their monthly spend. Perhaps the silver lining is that some of the lower end of the postpaid subscribers would be encouraged to sign for plans that offer ‘unlimited’ minutes for a flat monthly rate.

Another economic climate contributing factor could be lower churn specifically from ‘switchers,’ who may think twice about an incremental spend on a new handset. Witness Virgin’s quarterly (period ending December 31, 2008) churn drop to 4.8% from 5.1%. The annual churn rate for 2008 compared to 2007, however, rose to 5.2% from 4.9%.

While much is being made about Virgin’s recent quarterly financial performance, especially about the growth in service revenue, the company should also be given credit for dramatically reducing its CPGA (Cost Per Gross Addition). While quarterly and year-over-year gross addition were roughly the same, the company reduced its quarterly CPGA to $101.93 from $120.68 for the same quarter in 2007 or improving a key metric for prepaid MVNOs by more than $17 million.

And while monthly ARPU (Average Revenue Per User) in 2008 increased by $0.78 over the same quarter in 2007, there was a corresponding increase in CCPU (Cash Cost Per User) of $2.22. For the full year, while CCPU was down, so was ARPU.

Three Months Ended Year Ended

December 31, December 31,

——————– ——————–

2008 2007 2008 2007

——— ——— ——— ———

(Unaudited) (Unaudited)

Gross additions 960,421 957,541 3,305,857 3,384,460

Churn 4.8% 5.1% 5.2% 4.9%

Net customer additions 216,005 209,669 119,237 511,796

End-of-period customers 5,380,310 5,085,886 5,380,310 5,085,886

ARPU $ 21.14 $ 20.36 $ 20.30 $ 21.24

CCPU $ 13.99 $ 11.77 $ 12.74 $ 13.05

CPGA $ 101.93 $ 120.68 $ 108.68 $ 111.66

Free cash flow $ 25,720 $ 11,206

Unlevered cash flow $ 57,776 $ 62,657

‘See’ a doctor via online video chat or your phone

admin — Tue, 10 Mar 2009 03:14:35 +0000

A few low-cost services have launched on the Web attempting to provide some elements of basic health-care consultations cheaper, faster and easier.

Two such companies are American Well Inc. and SwiftMD Inc. The former launched in Hawaii while the latter is providing service in New York and New Jersey.

Content from WSJ

Prepaid Execs See Underbanked Consumers as Opportunity

admin — Mon, 09 Mar 2009 15:25:58 +0000

The Center for Financial Services Innovation (CFSI) has announced research results finding that “80 percent of polled prepaid industry executives see underbanked consumers as important or very important to the future growth of the prepaid industry, according to its latest survey of prepaid industry executives. Survey results are detailed in a new white paper, “The Industry Forecast for Prepaid Cards, 2009,” released today at the Prepaid Card Expo.”

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admin — Sat, 07 Mar 2009 21:17:59 +0000

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admin — Fri, 06 Mar 2009 17:04:02 +0000

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Analyst predicts wireless price war, says industry is “collapsing”

admin — Fri, 06 Mar 2009 16:25:41 +0000

Where would the wireless industry be without a little doom and gloom? Craig Moffett, an analyst with Sanford C. Bernstein & Co., said that if Tier 1 carriers miss their subscriber growth numbers as his firm expects, that they will resort to “aggressive price action,” i.e. a price war. “This industry is collapsing,” Moffett said in an interview with The New York Times. “The whole wireless business is grinding to a halt.” Moffett noted that the fourth quarter was the lowest subscriber growth rate for the U.S. wireless industry ever. Article

The MobileStore launches IVR-based m-payments service with Paymate

admin — Fri, 06 Mar 2009 14:44:00 +0000

(The Paypers) Indian mobile phone retailer The MobileStore has partnered with mobile commerce company Paymate India to launch an interactive voice response…

Yes Bank teams up with Obopay to offer new m-payments service (Banking Business Review)

admin — Fri, 06 Mar 2009 01:49:41 +0000

India-based Yes Bank has announced that it will soon start a new mobile payment solution, Pay Anyone, in partnership with Obopay, a mobile payment services provider, allowing customers to transfer money to other banks.