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 fifth episode of the week

0m12s Speaker 1

with Roger, conversation between analysts about all things telecom, media, and technology from Recon Analytics. I'm Don Kellogg, and with me as always is Roger Antner. How are doing, Roger?

0m23s Speaker 2

I'm great. How are you?

0m24s Speaker 1

I'm good. I'm good. So, Roger, it's been a minute since we talked earnings. Yep. I thought we could talk about T Mobile, Dish, and Altice, and I think there's some other news you wanted to go over as well in terms of personnel changes at some of the carriers.

0m38s Speaker 2

So Yeah.

0m39s Speaker 1

Who would you like to start with?

0m40s Speaker 2

Well, let's start with T Mobile. T Mobile's growth is relentless, right? Industry best account growth, they broke a 100,000,000 postpaid customer milestones, so congratulations T Mobile, well deserved. Postpaid phone net adds 777,000 was the best Q2, churn was 0.8%, everything continues to go right for T Mobile. What's very interesting is you did some analysis where you showed how things have actually changed over the last two years, right?

1m21s Speaker 2

Because they also mentioned that their service revenue grew by 4%, postpaid service revenue grew by 7%. So Don, how did they do it?

1m31s Speaker 1

Well, think what's interesting about T Mobile is T Mobile used to be kind of the rent to the litter, right? In the sense that I remember having T Mobile service ten, twelve years ago, and when you couldn't see the high rises in the distance, you no longer had coverage. Right? And so there was a kind of value exchange associated with that. Right?

1m49s Speaker 1

They were generally the least expensive carrier. They've talked about being the least expensive carrier for quite some time. I think the reality since they got mid band spectrum and kinda got a little bit of a leap on everybody else in terms of deploying five g, I would air towards coverage parity across the big three carriers. And certainly from, like, a five g build out perspective in mid band, arguably, they have a lead. Right?

2m12s Speaker 1

What I think that has given them is some pricing power. As part of the requirements of the merger with Sprint, they weren't allowed to raise prices for a period of time. We've now eclipsed that time frame. And one of the things we saw at that point was that T Mobile announced Go five g, Next, and some other plans that effectively, you know, offered more bells and whistles, but were more or less a $5 MRC increase. And so we had done some research a while back.

2m40s Speaker 1

You know, we talked to hundreds of thousands of people a year. Most folks can't tell you what their MRC is. Like, you know, their plan is $45 or whatever, but they can tell you what the total amount they pay a bill for each month as well as how many lines they have. And so when we looked at that, this was pretty recently about a month ago, folks that had service with T Mobile for more than six months, when you looked at the price distribution, what folks were paying relative to the other carriers, there was a price advantage at T Mobile. So generally speaking, folks were paying anywhere between $5.07, $10 less for service than they would pay for, you know, at at, like, AT and T or Verizon.

3m19s Speaker 1

What we've seen more recently is all the carriers and T Mobile's included this and have been more aggressive in terms of their kind of upgrade incentives. And so in order to get the best upgrade incentives at T Mobile and at Verizon, you have to sign up for a higher MRC plan or one of the more premium plans. And so what we saw is that for folks that have joined T Mobile within the last six months, they're basically at parity in terms of what they pay from a distribution perspective relative to the rest of the industry. So it's interesting to see kinda T Mobile grow up in a sense and that they're no longer forced to discount. Or as heavily.

3m53s Speaker 1

Right. As heavily. They still have the essentials plans, which I think are some of the best deals on the kinda low end of prepaid out there. But within the kind of average subscriber space, all three carriers are essentially at parity right now in terms of the distribution of who pays what.

4m9s Speaker 2

Yes. But we have to remember that the prices that T Mobile charges include taxes, whereas the headline prices that the other providers

4m21s Speaker 1

That's absolutely fair. What I would say is, and this is why we don't specifically ask about MRC, we ask total bill. Right? Because one of the things that carriers do, and they all do this, right, is you go to the website and it says, oh, well, like, you know, $55 a line, and it's for four lines. Right?

4m36s Speaker 1

And we know that the average number of lines is somewhere between two and three lines per carrier. Right? So the average person's not gonna qualify for that pricing. And there's also taxes and fees for some things, and some carriers don't include tax and fees. Some do.

4m50s Speaker 1

We ask total bill amount. Right? So this is distribution of total bill amount. So the $2.68 55 or whatever I pay for five lines each month is what I would answer this question, and that would be inclusive of taxes. This is soup to nuts after taxes.

5m4s Speaker 1

We're seeing basically parity across the three national postpaid carriers. We specifically don't ask MRC because a lot of people get confused about.

5m13s Speaker 2

Yeah, and there's apples to oranges. Right, exactly. We have like this really nifty rate card comparison tool where we show how these things are changing over time, and it's quite nifty. Right? Yep.

5m28s Speaker 2

But yeah, T Mobile is certainly growing up, and that's what's fueling that revenue growth. You know, it's very interesting when I look at T Mobile over time, when they had the near death experience, when AT and T tried to buy them, how they have consistently tapped into these revenue profit opportunities and centers.

5m52s Speaker 1

Well, I mean, arguably, that was the best thing that ever happened to them. And by the way, don't ever get in a fight with a man with nothing to lose. Right? I mean, they got a pretty good breakup fee for the AT and T merchant.

6m2s Speaker 2

And Spectrum. And Spectrum. But yeah, and so since now, basically, they had the advantage of low historic performance. And they have improved consecutively every quarter, and you have to give them a lot of respect for that. But the bar was relatively low, right?

6m23s Speaker 2

They could have really attractive pricing, which was still below that from everybody else. And it made them really good margin because the margin from historic perspective was so crap. Right? Now they are at the top of the game.

6m37s Speaker 1

Well, I mean, it's gonna be interesting too. Right? Because I mean, like old perceptions die hard. Right? And and despite the fact that we see a lot of network parity and, you know, obviously, everybody's network coverage situation is different, it was very clear in the four g era that Verizon had superior coverage to everybody else.

6m54s Speaker 1

Well, the five g where I think that it's fair to say that there's a lot more parity in terms of coverage. Verizon is still an excellent carrier. They still have excellent coverage, but everybody else kinda does too. Perceptions of network still

7m6s Speaker 2

favor Verizon.

7m7s Speaker 1

Over half of folks we talk to think Verizon has the best network. Right? And it's a similar thing with the value play where, you know, the question is, will perception of value catch up with reality in terms of what people are paying at T Mobile.

7m20s Speaker 2

And T Mobile will fight tooth and nail.

7m22s Speaker 1

When we've seen this network thing with Verizon really continue to really stick with people.

7m27s Speaker 2

Yeah. And so probably for T Mobile too, Mobile will will say like, oh, we're giving you here the kitchen sink worth of add ons that the other people don't give us. Right?

7m36s Speaker 1

Right. Which, you know, to be fair, is a breakage game just like minute plans were. Yeah. If everybody uses all the perks, it doesn't pencil. Just like if everybody used all eight hundred minutes in their old minute plan, it wouldn't work.

7m48s Speaker 1

Right? But you know how many folks are gonna use a given perk. You could be very generous, and some people will use some things, and other people will use other things. Right?

7m55s Speaker 2

I hope that they're not falling into a trap that somebody else fell into where the very helpful salespeople in the store activated people with like these value added plans, and then the customer never used it. It was the worst of both worlds. Carrier had to pay for it, and nobody used it.

8m14s Speaker 1

But I mean if you're a T customer or a T Mobile shareholder for that matter, by all measures they're doing very well. So kudos to them.

8m22s Speaker 2

And then we have EchoStar, formerly known as DISH. And the suffering continues. They lost only 16,000 customers. If they wouldn't have had ACP disconnects of 48,000, they would have grown, would have, could have, right? But they're losing money, you know, the air is getting thin, pay TV, you know, it's in a secular decline, and the question is how quickly does the boat sink?

8m53s Speaker 2

And so when we look at EchoStarDish, it's challenging for them. And I'm being nice, know. Other people say like, know, these guys are close, right?

9m3s Speaker 1

The NetAx number is a little bit of red herring in the sense like how many of those folks are on their own network versus roaming on somebody else's network. Right? I mean, they that's the really big question. Yeah. Hear them talk, and I I, you I went to their Investor Day a while back, and there are benefits to being on a fully virtualized cloud native network.

9m22s Speaker 1

But today, they're still putting most of their folks on the non cloud network. That's like a roaming agreement. Right? So Yeah. You know, if you're yoked to somebody else's wagon, it's hard to get ahead.

9m32s Speaker 2

Yeah. You only have owner economics when you You're the owner, right? Who's on it, right? Yeah. That's the challenge, and they've tried, and I would have approached it in a different way.

9m44s Speaker 2

I don't know if I mentioned it, when that deal closed, did like serious amount of analysis on it. And I looked at what's the cash flow, because in the end, right, what's the cash flow situation? What's the profit and loss, and how much money do they need to raise? You know, if they grew fast, they needed $10,000,000,000 and if they grew slowly, they needed $10,000,000,000 In a nutshell, they needed $10,000,000,000 And at that time, they could like raise an unlimited amount of money. The problem is they didn't, right?

10m16s Speaker 2

They had the commitments, and then the interest rates increased, and they could no longer raise $10,000,000,000 at one or 2%, but now they can raise nothing at 12. And that's what's gonna kill the business. Oops, right. But this was foreseeable five years ago. And that's why we were like so continuously bearish at this, because they needed to raise the money, and the people who made if I can do this analysis, others should have done this too.

10m47s Speaker 1

I think others may have done that analysis, and that's why the cost of lending was so high, right?

10m51s Speaker 2

The cost of lending is so high because we had inflation and all of that stuff, and interest rates in the market went blue.

10m58s Speaker 1

Right, but they're just not getting loans at the Fed funds rate, right?

11m2s Speaker 2

Exactly, and at that time there was more money around, money was chasing projects, and now projects are chasing money at a much higher interest rate, and that was the problem. Well, let's look at LTS, who also deserves a better faith than DISH, right? They're doing a lot of right things, and it's struggling. They had 40,000 fiber net adds, and because they're building fiber, but they lost overall customers because of cable. And they added 33,000 mobile net adds, which is also rather small, twice as good as a year ago, congratulations.

11m42s Speaker 2

They said here customer penetration of the broadband base was 5.8%, which is somewhere between half and a third of what Comcast and Charter are are doing.

11m55s Speaker 1

So they've got some room to run there, which is good.

11m57s Speaker 2

Yeah. But, you know, the hounds are chasing them, and so they need to run really fast. Their challenge is like, how much can we afford to build out fiber? It's the same thing as with Dish. It's a cash flow issue.

12m11s Speaker 2

Ultimately the right decision, but do you have enough money to make it to the destination, right? Right. One of the other things I wanted to mention is like the Google Pixel Fold came out. Oh my God, so many people got into conniption when AT and T decided not to offer it. You know, our friend of the show, Stetsendorgett, who I still think has the best name in the world, was like, oh, you know, I wonder how come did Samsung pay for full exclusivity?

12m45s Speaker 2

I looked it up in our numbers. Over the last year, we had like 370,000 people do like device evaluations with us, and we know exactly what phones they have because we passively collect that. And I looked at like, how many pixel folds do we have? And it was 89. When I look at the other, like, folds and flips, we're talking about the hundreds, if not the thousands.

13m13s Speaker 1

I mean, I think fold and flip phones are really interesting in the sense that I would love to see kind of a change in terms of the form factor with devices. Right? Like, everybody's had a candy bar phone since the beginning of time. First

13m26s Speaker 2

of all, the thing is, I think AT and T is not selling the Google Pixel Fold because the thing doesn't show up in the installed base, which to me means it doesn't sell.

13m35s Speaker 1

Well, there's a chicken or the egg thing. Right? Because, like, all the carriers have had very heavy incentives on folds and flips for the last at least three generations Yeah. Coming from Samsung. Right?

13m46s Speaker 1

So we're not aware of what the terms of those deals are, etcetera, etcetera, etcetera. Right? But the device comes out, and then it's being pushed by all three carriers.

13m56s Speaker 2

Yeah. But they sold Pixel's fold last year. Right? And they all get more or less the same deal. I don't think this is about money.

14m3s Speaker 2

This is about some sold and some didn't. To me, like that whole foldable thing is journalists and bloggers are a lot more enthusiastic about foldable and flippable phones than the actual users or the customer base at large and the users. Because we're also seeing that they don't score as high.

14m24s Speaker 1

The secret about getting a big phone, right, that's not a flip phone, is that the ratio of the battery that you can put in the device to the screen, which is the largest draw of power, is better. And when you get a flip or a fold, that is inverted. Right? Because you have twice as much screen, which is the main drainer of battery. And so when we look at how folks feel about these devices, and this is based on the last two or three generations that we've seen, they don't make it through the day with battery life on a heavy usage situation.

14m56s Speaker 1

And so for somebody that's, like, willing to pay $1,802,000 for a device, it's gotta make it through the day. And that's the problem that holds.

15m5s Speaker 2

And ideally, it doesn't break.

15m7s Speaker 1

And people are nervous about the hinge. Right? The hinges, I think, have gotten a lot better. You can still tell where they fold. But the bigger issue is, like, if you buy a really expensive device, you wanna use the hell out of it, and battery life is not as good.

15m19s Speaker 1

It's a basic physics problem. You've got more pixels to light up and the same amount of battery. So, you know, that that's the answer. Right?

15m26s Speaker 2

That's the answer. And that's why they don't score as high. And, you know, they're really sexy people like and then they don't like them, and really don't like them.

15m36s Speaker 1

Right. Although I would say the kind of people who are buying $2,000 phones are probably buying $2,000 phones every year, or maybe every two years.

15m43s Speaker 2

Yeah, but they all get like, on the financing plan, nobody's paying $2,000 for this phone. You know, they put it on installment. That's kind of red herring, they pay $50 a month, right? Oh, okay, they pay $10 more than they pay otherwise. Okay, if that breaks the bank, you've got other problems than your phone, right?

16m5s Speaker 2

And my condolences. So it's really interesting. But it's like the outrage in the blogger and journalists' fear about how AT and T dare not to sell this phone was like just comical. And I'm like, guys, look at the numbers how much they sold, and look at how happy people they are. Oh, you don't have access to it.

16m26s Speaker 2

Oh, too bad.

16m27s Speaker 1

Well, presumably, folks will be able to get an unlocked device and

16m30s Speaker 2

Yeah.

16m30s Speaker 1

Use it on the network. Right? So it's not

16m32s Speaker 2

But nobody's get who the percentage of people who buy unlocked devices, you know?

16m38s Speaker 1

I disagree. At least on the Apple side, there are a lot of people who buy unlocked devices directly from Apple.

16m43s Speaker 2

Wow.

16m44s Speaker 1

You can get 0% financing.

16m46s Speaker 2

Okay. You get then the financing from them. But I mean like unlocked devices, meaning without financing. People who buy this thing without an equipment financing plan. You know, that's what really matters.

16m58s Speaker 2

Anyway, we've been watching that for a while, and so finally there were like announcements so we can actually talk to it. So friend of the show, Rick Welde, great guy, is retiring, and Melissa Arnoldi is now running AT and T Enterprise. And the same way, John Dwyer, also friend of the show, both of them have been here, is also retiring. He ran cricket for AT and T. We wish them all the best in the next stage of their life.

17m32s Speaker 2

I'm sure they show up somewhere, somehow, right? And they're both great people. And you know, for those who follow the industry, August is a very, every August, early September, there are executive changes at AT and T, every year. So this year is no different. But congratulations to those two gentlemen, and congratulations to Melissa for running now AT and T Enterprise.

18m3s Speaker 1

Absolutely. All right, Roger. We'll talk to you next week.

18m6s Speaker 2

Talk to you next week. Bye bye.