Why one area of the economy isn’t seeing inflation
Inflation in December was the hottest in nearly 40 years, according to the Federal Reserve’s favored gauge, released this morning. US consumers have been confronted with higher prices for everything from gasoline to groceries, cars to dishwashers. There’s one industry, though, that’s undergoing a pricing war that has prevented increases.
Have you looked at your mobile phone bill lately?
“At a time when seemingly every other industry in America is raising prices, the wireless industry continues to be mired in an interminable ARPU slump,” wrote veteran telecom analyst Craig Moffett in a recent note, using the acronym for average revenue per user. He’s a co-founder and senior analyst at MoffettNathanson.
The Sprint-T-Mobile merger in 2020 led to concerns that wireless service prices would rise, Moffett told Yahoo Finance Live in an interview. But the opposite has happened, in part because of other entrants into the market. Dish Network is making a big investment in wireless spectrum, for example, and both Charter Communication’s Spectrum and Comcast’s Xfinity offer mobile service. Meanwhile, he said, T-Mobile has proven a formidable competitor that has led its rivals to offer promotions.
“You have more downward pressure on pricing,” Moffett said. “AT&T has sort of led that spiral by being very aggressive with promotionally, giving away free phones to existing subscribers, something we haven’t seen since 2013 or so. And that has pulled the industry back into this very hyper-competitive environment.”
It’s tricky to measure telecom pricing in part because of those promotions. As Moffett pointed out, bargains are frequently offered on hardware, but not necessarily service. The Bureau of Labor Statistics does break out wireless services in its consumer price index, and its numbers indeed show that wireless pricing has stagnated. While consumer prices overall rose 0.5% in December from November, they fell 0.1% for wireless services. On a 12-month basis, wireless prices rose 4% in the first half of 2021 before falling 0.4% in the second half.
The picture is even more lackluster looking at the carriers’ numbers instead of the government figures, according to MoffettNathanson’s analysis. The “Big 3” (AT&T, Verizon and T-Mobile) posted a decline in average revenue per user in the third quarter, and collectively haven’t had a gain of at least 1% since the first quarter of 2019.
Earnings reports have hinted the struggle for some providers is more acute than for others.
Moffett said AT&T’s earnings report this week highlighted that the core business isn’t growing: “What you’re left with is a company on a pro forma, going-forward basis — just what’s going to be left after all the divestitures — you have zero-point-zero percent organic revenue growth and zero-point-zero percent Ebidta growth, in the most inflationary time we’ve had in the macro economy in the decades.”
Verizon’s numbers this week also showed evidence of the price war, said JPMorgan’s Philip Cusick, who downgraded the stock to Neutral.
“Competition remains high in wireless and likely gets more difficult as new supply comes on from C-band, T-Mobile’s 2.5 GHz spectrum, Dish’s eventual launch, and cable’s small cell efforts.” Beyond fixed wireless broadband, this additional capacity could incentivize carriers to chase incremental subscribers or usage, resulting in even less competitive discipline than we have seen in recent times,” he wrote in a note to clients.
T-Mobile is set to report its numbers next week.
Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9am-11am ET. Follow her on Twitter @juleshymanand read her other stories.
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