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What Gives with Sprint’s Declining Customer Unit?

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Sprint’s postpaid ARPU

In this part of the series, we’ll look at another significant metric that helps investors understand a wireless telecom’s revenue. Specifically, we’ll look at Sprint’s (S) ARPU (average revenue per user). ARPU represents unit service revenues of wireless carriers such as Sprint, Verizon Communications (VZ), AT&T (T), and T-Mobile (TMUS).

Sprint is the fourth-largest US wireless carrier and is looking to improve its network to stabilize subscriber losses and ARPU. In fiscal 3Q16 (ended December 2016), Sprint’s postpaid ARPU fell 5.3% YoY (year-over-year) to reach $49.70, driven by a rapid shift toward the unsubsidized pricing plan.

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As you can see in the above graph, postpaid ARPU has been falling sequentially since fiscal 3Q15, and this has negatively affected Sprint’s postpaid service revenue. According to Sprint, postpaid ARPU trends should improve in 2017 as its 50% off promotions roll-off, and the company aims to migrate those subscribers onto the more accretive Unlimited Freedom plan.

Sprint’s postpaid phone ABPU

On the positive side, Sprint’s postpaid phone ABPU (average billings per user) continued to improve YoY during fiscal 3Q16. It rose ~1.1%, from $70.99 in fiscal 3Q15 to $71.77 in fiscal 3Q16. The main reason for this YoY rise was higher lease revenue. Sprint’s lease revenue rose from $0.5 billion in fiscal 3Q15 to $0.9 billion in fiscal 3Q16.

ABPU includes both service revenue and installment payments made by postpaid customers. We should note that installment billings fall under equipment revenue. Both service revenue and installment billings are relatively stable revenue streams for wireless carriers.

Notably, T-Mobile’s Jump plan is an installment plan similar to Verizon’s Device Payment plan and AT&T’s Next plan.

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