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

Full Transcript

Don Kellogg 0m10s

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 Entner. How are doing, Roger?

Roger Entner 0m22s

Hey. I'm good.

Don Kellogg 0m23s

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

Roger Entner 0m32s

Sure. So I thought it was a very good event. AT&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.

Roger Entner 0m46s

The stock really responded very well to what AT&T showed there. Overall, it was a lot more congruent and very clear in the strategy and how AT&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&T talked about accelerating the speed.

Don Kellogg 1m19s

The speed of the build out.

Roger Entner 1m20s

The speed of the build out, right? If it's a good thing, why are you slowing down? And AT&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&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.

Roger Entner 2m4s

Whereas, you know, AT&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.

Roger Entner 2m39s

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

Don Kellogg 2m48s

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

Roger Entner 2m53s

Yes. And it came through. They pointed out that 40% of service revenue growth materialized at AT&T, I think something that AT&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.

Roger Entner 3m17s

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

Don Kellogg 3m23s

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?

Roger Entner 3m41s

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?

Roger Entner 4m1s

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.

Roger Entner 4m22s

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&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.

Roger Entner 4m48s

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

Don Kellogg 4m58s

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.

Don Kellogg 5m15s

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

Roger Entner 5m21s

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&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.

Roger Entner 5m59s

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.

Don Kellogg 6m22s

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?

Roger Entner 6m33s

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.

Roger Entner 7m22s

And here in AT&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&T announced that by 2029, they will cover 300,000,000 people with five gs. AT&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.

Don Kellogg 7m58s

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

Roger Entner 8m1s

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.

Roger Entner 8m29s

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

Don Kellogg 8m35s

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

Roger Entner 8m39s

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.

Don Kellogg 8m59s

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?

Roger Entner 9m5s

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.

Roger Entner 9m38s

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

Don Kellogg 9m56s

gets the authority back, right?

Roger Entner 9m58s

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&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.

Don Kellogg 10m31s

Well, I think the continued fiber build out is very exciting as an AT&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.

Don Kellogg 10m50s

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

Roger Entner 10m55s

Yeah. So it was a very successful investor day.

Don Kellogg 11m0s

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

Roger Entner 11m2s

Thank you. Okay. Bye bye.