T-Mobile’s Business Push, Technology Advantages, and 5G Slicing with Daryl Schoolar

Full Transcript

0m10s Speaker 0

Hello, and welcome to the two hundred and eighteenth episode of the week with Roger, conversation between analysts about all things telecom, media, and technology by Recon Analytics. I'm Don Kellogg, and with me as always is Roger Antner. How are doing, Roger?

0m22s Speaker 1

I'm good. How are you?

0m24s Speaker 0

I'm good. So, Roger, we've been pretty busy recently, so we haven't had a chance to cover the q three earnings. So I thought we could do kind of a mega episode here and run through what we saw in q three, what was interesting, and you know, maybe what we might expect in q four, what we think is coming. What do you think?

0m41s Speaker 1

It's been busy, yes. And so yeah, this is like our catch up with also many things.

0m48s Speaker 0

So everybody's reported all the way from you know, A to V I guess, AT and T, Verizon, who do you want to start with?

0m55s Speaker 1

Let's start with A, right?

0m57s Speaker 0

Yep. All right, AT and T. So how'd they do this quarter?

1m1s Speaker 1

I thought they did pretty well. They had 400 and what, 29,000 net adds on the mobile side, very respectable. They had lowest churn again, which is really the foundation of their source for success. The fiber business is again a terrific foundation for them, and it's gaining momentum. They are starting to highlight the convergence, and it was very encouraging that they stated their convergence numbers again.

1m36s Speaker 1

And you see they are proceeding. They're hitting now almost 40% of their customers, of their fiber customers are converged. And they're seeing benefits, right? Their fiber offer is terrific. We always talk about, do happy customers bundle or are bundled customers happier?

1m57s Speaker 1

AT and T fiber customers are very happy. And they are picking up AT and T mobility service. And I think that's a big driver here. And so when you have a very good fixed offer, you get quality wireless customers. And I think that's what we saw here.

2m17s Speaker 0

Yeah. That was a good quarter. We did see that they were a little light on prepaid, but I think as we talked through some of the other providers, I think we've seen everybody's a little light on prepaid and that's been a continued trend over the last five, six quarters or so.

2m30s Speaker 1

But it also is third quarter. Third quarter is always light on prepaid.

2m35s Speaker 0

Yep. They also had among the MNOs the highest upgrade rate in terms of folks that are getting new postpaid devices, which I think is notable. One kind of macro trend we've seen across the industry this year has been declining upgrade rates. From a financial perspective for the carriers, you know, sky high upgrades are not always a great thing because there's some degree of subsidization there. But you know, they're not losing folks to deals at other carriers because of the, you know, their best deals for everyone promotions.

3m3s Speaker 1

Sorry to interrupt, but you're also seeing already the effect of their change in their next up plan. Traditionally, they offered, you know, for $5 you can upgrade your phone every two years. And they changed that nine months ago, a year ago, to you can upgrade your phone basically anytime for $10 And so you can get a new iPhone every year. Yes, you're paying $10 but you get that new iPhone every year. And that's what we're seeing in the upgrade rate.

3m34s Speaker 1

And the other thing that's really interesting when you look at that construct, so they're getting $60 more a year from the people who like to upgrade, plus the trade in is higher. And so I would venture to guess that this upgrade plan is actually less costly than a longer upgrade cycle.

3m54s Speaker 0

Right. So I mean, when you trade in your phone to get a new device, right, the carrier turns around and resells that device. And the older it is, the lower the value is. And so there's less value return for that trade in. If you're doing something like, you know, letting anybody walk in with any device, which is great from acquisition and that's what Verizon's been doing a lot of recently.

4m12s Speaker 0

The downside of that is that the resale on like a Galaxy S9 or you know, what other drives you might have in your drawer is not great for the carriers. I think 10, right? Right, right, exactly.

4m23s Speaker 1

And so this is a good driver for AT and T to lower the cost and to drive that customer base.

4m34s Speaker 0

Let's keep going on the M and Os.

4m36s Speaker 1

T Mobile, right?

4m37s Speaker 0

T Mobile, yeah. Next one, if we're going alphabetically here. How'd T Mobile do?

4m41s Speaker 1

They kick things out of the ballpark again. You know, one of the things we have to recognize is T Mobile is providing a lot of value, without a doubt. But they are now the price leader in the industry, right? If you go to the Go five gs, whatever the top line is.

4m59s Speaker 0

Go five gs Plus, yeah.

5m0s Speaker 1

Yeah, which also lets you upgrade every year, but it's the highest price plan in the market. That has not stopped T Mobile from racking up new customers. They added what 865,000 postpaid phone net adds, 1,500,000 overall postpaid net adds. Phone churn comes in below Verizon, right? And Verizon is, I'm sure it bugs them to no end.

5m31s Speaker 1

But the game is on, how can you lower churn? T Mobile is very confident in that it would be able to lower churn even further. They did really, really well. FWA numbers came in a little bit lighter than expected, but that number is churning. And it's eating into the cable guys broadband numbers, which we also saw.

5m53s Speaker 1

And so, another really interesting, really good quarter. You know, I know we are working really hard in backing out their business numbers. With the success that they have in small, and I would say like in very small business, we're seeing them having a lot of success. They talked about wanting to get into medium business. It's going to be a lift.

6m14s Speaker 1

The requirements of medium and large businesses and enterprises is different than that of consumers. But we see them having a tremendous amount of success. The more a business looks like a consumer, the more successful T Mobile is right now. And so what will be very interesting is, when will T Mobile for Business be so large that they have to break it out? Right?

6m38s Speaker 1

When is it a meaningful part of the company? And I'm like waiting quarter after quarter for T Mobile to say, okay, here is consumer versus business. Here's the meaningful thing. So I don't know how long I can hold my breath. I hope it's not too long, right?

6m55s Speaker 0

Yeah, I think they have a good quarter and I agree with you on the go five gs raising the kind of price points on the high end. What I would say is that T Mobile is also competitive across the board. You know, they're competitive with T Mobile Essentials on the low end of postpaid as well as with MetroPCS and the acquisition of Mint Mobile, which is kind of a different animal with respect to prepaid. We see their ARPA and their ARPU going up as they kind of expanded up on the high end, but they aren't letting off the gas on the middle and low part of the market as well. So I mean, they're competing I think very, very well across the board in consumer.

7m29s Speaker 1

And in our numbers, we still see that, you know, T Mobile still has the value halo similar to like Verizon still has the network halo. Reality and perception are not always moving in lockstep.

7m44s Speaker 0

Right. Right. So like when we look at folks that have gotten a new plan within the last year or so, the ARPU that we're getting from those folks distribution is roughly similar to that at like what we see at AT and T and Verizon, whereas folks that have been with them for more than a year, more likely to be on legacy plans. Those folks are paying on average, you know, 5 to $10 less for that service. And so Verizon's held on to network halo for a long long time.

8m11s Speaker 0

You know, will T Mobile continue to hold on the network halo or not network, the value halo moving forward, think is, you know, something we wanna keep an eye on.

8m19s Speaker 1

Yeah. No. Absolutely.

8m21s Speaker 0

So we mentioned Verizon a couple times talking about AT and T and T Mobile. How's Verizon doing? Well, we

8m28s Speaker 1

talked about Verizon. I think Verizon is very happy right now because they closed their Frontier acquisition. They had a little bit of a scare where one of our friends, Jonathan Chaplin from New Street Research said like Verizon is getting the deal of the century and they should actually pay more. 63% of shareholders of Frontier disagreed and they took the money and ran. And so, I think Verizon, we went really through them in detail.

8m59s Speaker 1

Wanna talk cable first or?

9m1s Speaker 0

Yeah, let's do cable. We'll start with Comcast.

9m5s Speaker 1

Comcast had another good quarter. They added 319,000 net adds, which I think is their run rate similar to Charter with like five forty five. They're doing very well there. And they need this to shore up and inoculate, you know, their fixed base. You know, especially for Charter, what's very positive for them is the expansions with RDOF, where it's a source of growth, whereas in existing markets, the broadband business is challenged.

9m35s Speaker 1

Comcast wants to do things a little bit cleaner. They talked about spinning out some of the cable channels. So we're seeing in a way here, to a certain extent, a little bit of a cleanup happening. Altice did also not bad, 35,500. They got off the, you know, free service thing that they were on for a while.

9m58s Speaker 1

So that's very respectable. The cable companies are going to continue at this pace simply on price. The question is, how long will this go? Craig Moffett did a report a while back where he's like, oh, it's at 32,000,000 is the breakeven point between churn and SOGA. Share of

10m18s Speaker 0

gross ads, SOGA.

10m20s Speaker 1

Yeah, SOGA share of gross ads. He had a churn number in there. I think 32,000,000 would be very high for cable. I think it's coming in lower. When I run my numbers, I come up with a different number.

10m34s Speaker 1

But he put that down and we did quite a number of analysis and went from a different perspective of like looking at the customer base and how happy these customers are. Because following our trajectory of happy customers, bundle and unhappy customers leave. But the good thing is like, especially Charter is focusing on Net Promoter Score and making customers happier. I think that's a terrific idea, not only for a cable company, but everybody of how can you make customers happier, because especially cable customers have been not very happy with their providers overall. But there are a lot of happy cable customers out there.

11m15s Speaker 1

They make a lot of customers happy and they also make a lot of customers unhappy. That's how it plays. And then we have our friends at DISH, right?

11m23s Speaker 0

Yeah, speaking of, well, maybe not speaking of happy, but how did DISH do?

11m28s Speaker 1

Well, you know, Dish lost 297,000 customers again, and they lost in all the other businesses as well. It was interesting, they pointed out that if you take out the ACP customers, they would have grown. My reaction was simply like, oh, and if you would have taken out the ACP customers in the previous quarters, you would have really, really sucked wind, right? You can always find a ray of sunshine even in a pretty dark place. I think the real news here is the three jumbo jets landing on one runway, and one of them doesn't really cooperate the way Dish would have hoped to.

12m16s Speaker 1

The three jumbos are selling DISH satellite TV to TPG, getting more financing from outside including TPG, and then getting the existing shareholders to agree to a new deal. You know, as expected, the first two were pretty easy. That's the third one that's difficult, especially they're asking bondholders to take like a 20 to 30% haircut, and Charlie Ergen to make $1,500,000,000 for himself. That's the tough pill to swallow for a lot of people. They're like, why are we taking here such an extensive haircut?

12m57s Speaker 1

They went back and forth with a minor sweetener, but it was no dice. And so, come on guys, the incentives have to be in line, and the pain has to be in line. Everybody knows that, you know, this needs to get done. It's not one side people hold the bag, right? So I think that's the rub here when we look at that overall.

13m19s Speaker 0

We've got one left, US Cellular. I know they're riding off into the sunset here. You know, they're still reporting.

13m25s Speaker 1

They're still reporting dead men walking, right?

13m28s Speaker 0

Right, right, as they sell off pieces of the body.

13m31s Speaker 1

They lost 28,000 postpaid customers. I think they grew a little bit on prepaid. Churn stayed roughly the same. You know, this is the swan song of UScellular. It swung to a loss for the first time.

13m47s Speaker 1

The end is near, right? So, you know, we had elections, right? The elections probably made all the transactions around UScellular easier rather than harder. Elections have consequences.

14m2s Speaker 0

So what are you keeping our eyes on moving forward for Q4?

14m5s Speaker 1

Well, Verizon needs to add, needs more gross adds. They promised that they will deliver a positive 2024. And that means a successful holiday season, especially around Black Friday. And traditionally, that was a very intensive promotion period for all of them, but especially Verizon. As part of our research into the iPhone 16 launch, we saw a lot of customers waiting for the promotions around Christmas and Black Friday.

14m38s Speaker 1

And also we have now or are about to hit, you know, we had the teaser iPhone intelligent or Apple intelligence thing. Now we're soon getting 8.2, which is even more intelligent, which on the other hand is not that hard. But we're getting somewhere. And so we might see iPhone sales having a second wind, and with it a change in operators. Because a lot of people are buying a phone and here especially an iPhone as an opportunity to switch carriers.

15m12s Speaker 0

Yeah, mean, think we've both been pretty bearish about an iPhone super cycle, in part because there hasn't been a lot of increased functionality that's been released yet with Apple Intelligence.

15m23s Speaker 1

And we looked at our data. We looked at our data. The data says it's not coming. Right?

15m28s Speaker 0

Right. Right. Should be interesting. Yep. Thanks, Roger.

15m32s Speaker 0

We'll talk

15m32s Speaker 1

to you next week. Okay, bye bye.