Q1 '26 Earnings - AT&T, Comcast, and Charter and the Rise of Fiber Castles

Full Transcript

Don Kellogg 0m10s

Hello, and welcome to the two hundred and ninety third episode of the week with Roger, a 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. Roger, how are you doing?

Roger Entner 0m22s

I'm great. How are you?

Don Kellogg 0m24s

I'm good. So it's that time of the quarter again. It's earnings time.

Roger Entner 0m29s

Yes.

Don Kellogg 0m29s

These are always fun, and we've got three companies that reported last week to talk through. So AT&T, Comcast, and Charter. Who do you wanna start with?

Roger Entner 0m39s

Well, let's start with AT&T. AT&T's convergence strategy is working. That's the good news. Right. It's working less well outside the footprint.

Roger Entner 0m50s

They added a good number of, like, 300 and change thousand net adds. Their fiber net adds came in strong. Their FWA came in pretty strong. When you do the math, actually, what you can see is that inside the fiber footprint, they gained like half a million subscribers. And outside the footprint, they lost customers.

Roger Entner 1m15s

For me, that would be a worrying sign, and this is the second quarter in a row. I wrote a piece about fiber castles where I discussed this trend. There's a follow on paper coming out when this podcast comes out on Monday or Tuesday. The research note, I think, will be available on our website and on Light Reading. We're discussing this trend and we're quantifying it.

Roger Entner 1m38s

The big question is, is this ILEC two point zero again, right? The whole thing that if you have more stores, if you have the whole history, all of that, does that give you a lift? And the answer is yes, it gives you a lift, 5% or so when we look at share. Right. Fiber gives you a 15% lift on average.

Roger Entner 2m0s

And it doesn't matter if you're AT&T or Verizon. And I don't think the market overall is properly

Don Kellogg 2m8s

Accounting for that.

Roger Entner 2m9s

Accounting for that. They're missing this really important lift. And it doesn't matter basically who this is. It also is valid for smaller providers, you know, all the way down to say Kinetic. And so the trend holds through.

Roger Entner 2m24s

What is dangerous then is like how do you play this when we see already this happening? And we know when we can see it in our numbers that Verizon is winning in the Northeast where they have fiber and they're losing everywhere else. That's why the Frontier acquisition makes so much sense and why it is so critical for them.

Don Kellogg 2m44s

Well, same could be said for the Luminim acquisition at AT&T, right?

Roger Entner 2m48s

And exactly, it's the Lumin acquisition as well. That's why they're all buying fiber. And that's why structurally, when you look at T Mobile, they have fiber towers. They have like smaller areas. And the FWA is just structurally not strong enough for this.

Roger Entner 3m7s

You can play offense with it, but you can see already what is happening. Some of the video streams that are coming out, especially for sports, are like designed to be like 150 megabits per second plus. So to be an FWA killer, right? If you want to have your favorite game and everything with all the pop up windows, with all the cool stats and everything.

Don Kellogg 3m32s

Different angles, cool stats, etcetera, yeah.

Roger Entner 3m34s

All of that stuff. And it's like basically designed to be an FWA killer. And what's the number one thing that people watch? Sports, right? And so it's going to be really, really interesting of how this plays out because that's attacking FWA.

Roger Entner 3m51s

But companies like AT&T, they can't have fiber everywhere. And so how do you play offense on a converged FWA device phone basis? And then how do you play offense even without FWA? Like in New York City. AT&T does not have fiber there.

Roger Entner 4m11s

It does not have FWA there because it's so the mobile phones, it doesn't work because the mobile phones take up so much of the capacity. And so how do you play in a tri band thing? And so AT&T came out with that ConnectOne plan, which I think is a visionary product that is fixing a lot of those structural issues inside the fiber castles.

Don Kellogg 4m35s

Right. But I mean, outside the fiber castles isn't the strategy You

Roger Entner 4m38s

get sniped to death.

Don Kellogg 4m39s

Well, Giga Power, you know, as a capital light way of building out more fiber. Right?

Roger Entner 4m45s

Correct. But only if you're first to fiber. That's the strategy there. And that leads us then to Comcast and Charter, which is the tale of two cities this time around. The structural advantage of cable is less, because the customers are less satisfied.

Roger Entner 5m4s

Now, when we see in our data that the satisfaction, our CNPS for cable has been increasing over the last two years. You remember when we started with this, cable was like a sea of red in our heat map. Yep. People everywhere, there were more detractors than there were promoters. Now this has somewhat changed, right?

Roger Entner 5m26s

On a service delivery basis, they have gone, right?

Don Kellogg 5m29s

Yes. I mean, think there's a survivor bias too, right? I mean, like, I think one of the things that FWA has has introduced, right, is the ability for people to switch out of cable, right? So it's kinda like, you know, how do you improve morale? You fire all the unhappy people, right?

Roger Entner 5m41s

Oh, they self select out. Considering how much, I think the trend is stronger. Actually, will run the math. In one of the two papers, I have a chapter that's called When the Beatings Stop. Because then, in a lot of cases, ordinary things feel extraordinary.

Roger Entner 5m59s

And when you look at NPS, yes, FWA has higher NPS than almost anything else, anything but Starlink, which is another selection bias. But when you look at it from an NPS by what they had before, there is a very steep gradient where former cable customers rate FWA with like plus 30. And all the way down, when an FWA customer switches to another FWA customer, is 15. And so the natural floor, and over time it will get there for FWA, is 15, which is less than fiber. But because it feels so extraordinary, because the customers, as you said, who had a horrible experience beforehand, really, really appreciate the new experience.

Roger Entner 6m49s

But I think genuinely, the cable experience is getting better and they're genuinely trying. This becomes a better market and a market that is genuinely better for customers, whoever they have.

Don Kellogg 7m1s

I agree. And I think more competition is good for companies and it's good for consumers, right? Yes. FWA and fiber overbuilding and all this kind of thing are gonna be a net positive in the long run for cable, but it's painful painful for the time being, right?

Roger Entner 7m15s

Yeah. What we saw in Comcast is that the residential home internet losses went down. And they had a record quarter for mobile. And we always say like, happy customers bundle, bundling doesn't make them happier. And so we have more happy customers.

Roger Entner 7m34s

And so that natural segment that makes sense, because the question we always get, when does this party stop where cable adds more wireless customers? And it's like, well, the NPS is going up. That means more happy customers, which means the natural lift for cable becomes bigger. So for Comcast, it was a good story. For Charter, the net adds went down.

Roger Entner 7m59s

They lost more customers on cable, and they didn't grow as fast in wireless. This was the first time in like, what, two years, three years, where Comcast was adding more wireless numbers than Charter did, which is interesting, right? But it's also driven off the the home internet number for cable. So it's a really, really interesting story of how this is playing out. And we're watching how the thesis that we have laid out is actually coming true in real life.

Roger Entner 8m32s

When we look at the FiberCastle thing, it's like the one who's going to struggle the most in the long run will be actually T Mobile, because they have the least fiber and they don't have the retirement of copper muscle. So something has to give. And also, I ran more numbers of what we see in our data. And the number of people that are best of breed and know I don't want to bundle is a lot, lot smaller than what I thought. It's a lot smaller.

Roger Entner 9m6s

And so the bundling market is by far bigger than what I think almost everybody thinks. It's insane. But read the report.

Don Kellogg 9m15s

Yeah, it's an interesting report.

Roger Entner 9m17s

Buy the report, right? Yeah. So the research notes are coming out. They're either already on our website and with light reading, and at least one of the reports is up. We'll probably put the other report up in the next couple days.

Roger Entner 9m29s

But yeah, it's cool stuff.

Don Kellogg 9m31s

Good stuff.

Roger Entner 9m31s

And it's fascinating what's happening in this industry and how it plays out. I can't wait to see what's happening at Verizon, you know, second quarter under Dan Schulman, and what's happening at T Mobile.

Don Kellogg 9m45s

Well, on the Verizon side, historically, they've, at least in recent memory, struggled a lot on q one. So we'll really see kind of what is the impact.

Roger Entner 9m53s

Oh, they will lose I'm pretty sure they will lose customers in the first quarter. The question is how many? Right. And then the other one is Srini is executing on his playbook for the, what, sixth time, seventh time? And so what I'm looking there is continued increase in subscribers, but much more importantly, what is EBITDA doing?

Roger Entner 10m16s

Because Srini is really, really good as a product optimizer and see what's happening there. And so we'll see if the playbook plays out the last couple of times like this.

Don Kellogg 10m29s

The plans are more expensive. Right? So if more folks are still walking in through the door and the prices are higher, you would expect revenue to go up.

Roger Entner 10m36s

Yeah. But also we all saw that they have reorged dramatically, that they have done all of that stuff. Oh, oh, we forgot. And then there was this news that they wanna merge.

Don Kellogg 10m48s

With DT.

Roger Entner 10m49s

DT and T Mobile USA completely. Yeah.

Don Kellogg 10m54s

I think that might be another podcast topic. That's a sticky wicket, but it is very interesting.

Roger Entner 10m59s

Yeah, but it's very interesting. Here's the thing, They have done this over and over again. This is not new. It's a regular topic. I think the important part to look at, this is part of Tim Hetker's riding into the sunset and Legacy Play Building.

Roger Entner 11m15s

But we can talk in more detail about that.

Don Kellogg 11m18s

Yeah. I think that deserves its own episode because it's a big topic.

Roger Entner 11m22s

So Okay. So we'll do that. Okay?

Don Kellogg 11m25s

Alright. Cool. Thanks, Roger.

Roger Entner 11m27s

Thank you. Bye bye.