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 twenty first 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

Hey. I'm good.

0m23s Speaker 0

So Roger, you just got back from Investor Day at AT and T last week. I thought we could go over your thoughts about the presentation as well as the guidance that they provided.

0m32s Speaker 1

Sure. So I thought it was a very good event. AT and T was last when it came to investor events. But I think at least Wall Street loved it the most. And I think that's the point of these events.

0m46s Speaker 1

The stock really responded very well to what AT and T showed there. Overall, it was a lot more congruent and very clear in the strategy and how AT and T benefits financially from the strategy than, for example, what Verizon talked about. Because both companies were talking about doubling down on fiber, but Verizon was effectively talking about halving the speed. Whereas AT and T talked about accelerating the speed.

1m19s Speaker 0

The speed of the build out.

1m20s Speaker 1

The speed of the build out, right? If it's a good thing, why are you slowing down? And AT and T very clearly articulated, it's such a good thing we're speeding up. And we're going to 50,000,000 households, 45 of which they will do by themselves and another five through Giga Power. It was different to T Mobile's event in San Francisco, as this was just focused on AT and T, whereas at T Mobile, T Mobile is very energetic, very enthusiastic, and it had like the two biggest Silicon Valley celebrities of the year in Jensen Huang and Sam Altman there.

2m4s Speaker 1

Whereas, you know, AT and T is a button down telco, focuses on telco, and that's what you got. And Wall Street loved it, right? And it showed like, you know, the significant turnaround that the company has made under John Stankey's leadership. It invested since he took over at the helm $140,000,000,000 in CapEx and spectrum, reduced debt by $25,000,000,000 and is returning 45% of cash flow. Numbers like that, Wall Street loves to hear.

2m39s Speaker 1

And especially as the company has grown, which they didn't really as they were distracted by their forays into

2m48s Speaker 0

Well, yeah, exactly. I was going to say they also cut off the gangrenous appendages.

2m53s Speaker 1

Yes. And it came through. They pointed out that 40% of service revenue growth materialized at AT and T, I think something that AT and T didn't get enough credit for. And they have the lowest churn, mobile churn in it in the industry. So really significant progress that they made under John's leadership.

3m17s Speaker 1

And now they are going to expand onto it on a foundation of fiber.

3m23s Speaker 0

Say more about that, right? Because I think out of all the carriers, they're probably the most doubled down on convergence or this idea of convergence. So can you talk a little bit about their perspective on that and what they shared relative to, you know, when you have customers on fiber and on wireless, you know, what does that mean for the business?

3m41s Speaker 1

Well, we talk about it. They have according to our NPS numbers, the best fiber provider in the industry. Most satisfied customers. And they're building on that with wireless customers. And we talk about it, do happy customers bundle or are bundled customers happier?

4m1s Speaker 1

And we know for sure happy people bundle. We're not sure yet if bundling makes you happier. Not necessarily, right? But they have done a significant growth. Like in third quarter 'twenty one, about 35% of their fiber customers were converged.

4m22s Speaker 1

They're now at almost 40%. The converged customer base went from 2,000,000 to 3,600,000. And they showed here that 77% of customers prefer to purchase connectivity from one provider. And AT and T thinks that they're going to get basically 50% of that. And I think that's a very modest goal that they should be able to actually blow away.

4m48s Speaker 1

Because typically, when fiber wins against cable, And so that should do really a significant progress.

4m58s Speaker 0

It's almost a two step, right? You build out the fiber, they've announced that they're going out to 50,000,000 homes passed. You deliver on the promise of fiber, right? We know fiber is a technologically advanced solution that has better satisfaction associated with it, better reliability associated with it. It's some of the fastest connections you can get.

5m15s Speaker 0

And then the two step on that is then you turn around, find those happy fiber customers and sell them wireless.

5m21s Speaker 1

And then also use that fiber for businesses. Both Jen Robertson and Melissa Arnoldi talked about that fiber is here that, and then you add to mobile, especially in business. AT and T has the really wins consistently with enterprise customers. And so they have a lot of room for improvement in the mid sized companies and where Verizon is doing a very good job. And in small, where on the mobile side, T Mobile wins, and on the fixed side, the cable companies are really strong.

5m59s Speaker 1

And so, I think there's a lot of improvement there. They also talked about how they are simplifying and improving their wireless network by going to Open RAN, and how they are simplifying their tech stack, and become a lot more efficient in delivering, you know, service.

6m22s Speaker 0

We learned more about who's going be in their tech stack too, right? I mean Yeah. Nokia is kind of on the way out. Ericsson, we've all known has won a big contract there, but they also revealed two new partners, correct?

6m33s Speaker 1

Yeah, so, you know, one of the jokes about Open RAN was like, which is built on the premise of open interfaces and multi vendor platform. You know, in the beginning it needed to have, they needed to reduce down to one, and that was Ericsson. In that press release, there was always a carve out for Fujitsu. And now they announced not only that the Fujitsu radios, but also Mabonier radios are a part of the portfolio. That's a really big win for Mavoneer, which is one of The US domestic providers, and they have been very successful on the software side, but have been until this announcement a little bit struggling on the radio side.

7m22s Speaker 1

And here in AT and T, they now have a marquee partner on the radio side, which should really help Mabaneer greatly in bringing their radios to other providers as well. And as part of that, AT and T announced that by 2029, they will cover 300,000,000 people with five gs. AT and T already today has the largest by geography four gs network. And they are going to build out here up to 300,000,000, that's about 90% of The US with five gs.

7m58s Speaker 0

Well, and implicit in that is some densification as well, right?

8m1s Speaker 1

That always happens, right? But it's like, how can they bring the five gs to everybody in the country? It's going to be very interesting. They also talked about reducing and exiting copper by 2029. In the 21 foot state footprint, they have 20 agreements with the states that they can retire their copper network.

8m29s Speaker 1

California is the lone holdout. Yeah. And that's California for you, right?

8m35s Speaker 0

Well, it wouldn't be the first time that California PUC was, you know, stepping in things

8m39s Speaker 1

from Right. The So that should help a lot with the cost structure. Because in a lot of places, there's a handful of customers left. And a combination of satellite and mobile solutions, you know, should do the trick in a very reliable way.

8m59s Speaker 0

And it looks like there's still a lot of pretty good glide path to reduce leverage as well, which Wall Street is always happy about, correct?

9m5s Speaker 1

Yeah, but they didn't talk about leverage reduction. I think there will be an implicit leverage reduction by EBITDA going up. But they talked about that they will have about $50,000,000,000 and it's probably more than $50,000,000,000 in financial headroom. Yeah, when we look at the capital allocation that they talked about, about 20,000,000,000 of the $50,000,000,000 plus financial capacity that they have will go into dividends. Another $20,000,000,000 will go into share repurchases.

9m38s Speaker 1

And the board already announced or approved 10,000,000,000 of that. And that leaves them with at least $10,000,000,000 of financial flexibility, probably even $15,000,000,000 that they can use for more spectrum purchases if Capitol Hill gets

9m56s Speaker 0

gets the authority back, right?

9m58s Speaker 1

It's going there. Or M and A, you know, further expansion of their fiber footprint, you name it. You know, it has been a long time that AT and T had a war chest, you know, over the next basically from '25 to 27 of $10,000,000,000 plus to opportunistically go in and win the day, right? So, you know, this is a different company than what it was under Randall Stephenson.

10m31s Speaker 0

Well, I think the continued fiber build out is very exciting as an AT and T Fiber customer. I'm one of those satisfied customers that believes in the promise of fiber. So that bodes well for them. Fiber is used for so many different things, kind of the core network for wireless and wired, etcetera, to the extent anybody's willing to build it out. I think it's a good thing.

10m50s Speaker 0

And I also think it's good that they've managed to drop their churn so low in the financial ramifications of that.

10m55s Speaker 1

Yeah. So it was a very successful investor day.

11m0s Speaker 0

Awesome. Well, we'll talk to you next week. Thanks, Roger.

11m2s Speaker 1

Thank you. Okay. Bye bye.