First-Quarter Cloak & Dagger

As carriers trickled out their first-quarter 2001 earnings announcements, industry leaders patted themselves on the back, saying wireless had been spared the devastation of the current economic slowdown. Subscriber bases grew significantly, earnings expectations were met and ARPU increased — all signs of robust businesses. But a closer look at the numbers reveals a dimmer picture.

With the exception of Cingular (www.cingular.com), every major carrier's growth rate declined in 1Q01 compared to the same period last year. Even carriers that had been growing like weeds, such as Sprint PCS (www.sprintpcs.com) and Voice-Stream (www.voicestream.com), saw declines.

Sprint PCS increased its customer base by 875,000 subscribers in the first quarter, representing a 5.3% increase in net additions from last year's first quarter and a 9.4% total subscriber-base increase. Near 10% subscriber growth might be good news for most carriers, but it's not optimal for Sprint PCS.

Last year during the first quarter, the carrier increased its total subscribers by 14.4%. VoiceStream's growth rate also hit the brakes. During 1Q00, the carrier's subscriber base increased 66.6%. This first quarter, Voice-Stream subscribers only grew by 13.1%. Net additions fell from 686,000 subscribers in 1Q00 to 511,000 in 1Q01. AT&T Wireless (www.attws.com) was not immune to the slowdown either, as its first quarter net additions fell from 4.4% to 3.9%.

The biggest hit, however, was sustained by No.1 carrier Verizon Wireless (www.verizonwireless.com). Verizon saw its net additions fall 40.7%, adding 356,000 fewer customers in the first quarter than its predecessors Vodafone AirTouch, BAM and GTE Wireless accumulated during 1Q00. Consolidation can't be blamed for the shortfall because Cingular's growth rate increased. Cingular customers grew by 4.3% in 1Q01, just over the combined 4.2% growth by BellSouth Wireless and SBC Wireless in 1Q00.

Lagging growth, however, doesn't equate to lagging revenue. Most carriers enjoyed surges in revenue and income in the first quarter, with AT&T Wireless leading the pack with a 46.6% increase in operating revenues and an astounding 429.4% increase in operating income.

Verizon's revenue grew 87%, and its income increased by 36.8%, while Sprint PCS increased its revenue by 68.1% and cut its operating losses by 53.1%.

With the exception of AT&T Wireless, most of the larger carriers increased their ARPU from quarter to quarter. Perhaps a growth slowdown is just what the wireless industry needed.