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Fitch: Equipment Installment Plans Make Mark on Wireless Business

The traditional subsidy model for wireless customers is undergoing a transformation, according to a new report by Fitch Ratings. Rather than customers continuing to receive a subsidized handset device in exchange for a two-year service contract, the model is shifting toward a no-subsidy purchase using equipment installment plans (EIP).

From a customer perspective, EIPs can simplify the purchasing process as the cost of handset devices are more transparent and service costs are more identifiable. Following T-Mobile's launch of its Jump! equipment installment plan during 2013, all of the major wireless carriers responded with the launch of similar plans.

Postpaid subscriber net additions among the four largest wireless carriers swelled to approximately 2.15 million units during first-quarter 2014. Fitch estimates tablets were 77% or 1.7 million of the 2.15 million postpaid subscriber units added during first-quarter 2014. This represents an uptick compared to fourth-quarter 2013, when tablets comprised approximately 58% or 1.7 million of the 2.9 million postpaid subscriber units added.

Fitch estimates the largest video service providers gained approximately 261,000 video subscribers during the quarter ended March 31, 2014 and video subscribers increased by approximately 105,000 subscribers during the year ended March 31, 2014. First-quarter 2014 marks the industry's largest subscriber gain since first-quarter 2012. The largest cable MSOs accounted for approximately 51% of video subscribers among the largest multichannel video programming distributors. Direct-broadcast satellite (DBS) service held approximately 37% of video subscribers share followed by the large telephone companies with a 12% share.

The largest cable MSOs accounted for approximately 46.6 million video subscribers, representing 50.8% of video subscribers among the largest multichannel video programming distributors. Direct broadcast satellite (DBS) service providers totaled approximately 34.3 million video customers (37.5% of video subscribers) and the large telephone companies had more than 10.7 million video subscribers (11.7% of video subscribers). The telephone companies gained 160bp of the multichannel video subscriber market in 2013, as the cable MSOs lost 200bp of the market share.

Fitch's special report 'U.S. Communications Industry Leaders Competitive Scorecard' discusses trends in the 1Q'14 regarding the scope and depth of the competitive overlap of leading telecommunications operators. The report compares the competitive positions of the leading local exchange carriers (LEC), cable multiple system operators (MSOs), wireless service providers and direct broadcast satellite (DBS) operators. The report also summarizes key operating metrics financial statistics, particularly related to key forecast items such as revenue growth, margin changes, capital re-investment and debt. Additionally, the report includes summary comments concerning key developments in the quarter.

This quarterly report can be found at 'www.fitchratings.com' under the following headers:

Sectors >> Corporate Finance >> Corporates >> Special Reports

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: U.S. Communications Industry Leaders Competitive Scorecard - First Quarter 2014

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=751597

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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