Q1 '26 Earnings - Verizon, T-Mobile, and Key Takeaways from Deutsche Telekom

Full Transcript

Don Kellogg 0m10s

And welcome to the two hundred and ninety fourth 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. How are doing, Roger?

Roger Entner 0m22s

Hey. I'm great. How are you?

Don Kellogg 0m25s

I'm good. So we've got a couple more providers that reported last week and that we could talk through Verizon, which I think we foreshadowed a little bit when we last spoke. T Mobile also reported.

Roger Entner 0m36s

Yeah. And I can give a little bit of color from a Deutsche Telekom event was at this week or last week in Germany.

Don Kellogg 0m47s

Cool. Sounds good. So wanna start with Verizon?

Roger Entner 0m50s

Sure. Verizon at what? Its best first quarter since France demo. Yep. And most people have probably forgotten Franz Schemmel, who was CFO of Verizon under under Noel McAdam.

Roger Entner 1m6s

So this is, like, what, eight years? Ten years? Yep. Somewhere like that. Because the whole malaise of Verizon malaise started there.

Roger Entner 1m16s

When they started losing customers every first quarter, and then they started losing customers first and second quarter, and then they lost customers first, second, and third quarter. Right?

Don Kellogg 1m26s

Right.

Roger Entner 1m27s

At least the fourth quarter stayed them true. So they added a very strong net adds. So that's a great first step. They still lost accounts. So I think Verizon is on the right way.

Roger Entner 1m42s

I don't think Verizon is out of the woods yet. Right? But, you know, I always say, like, numbers and facts don't make decisions. People make decisions. You have a new leader, the organization responds, and the numbers follow.

Roger Entner 1m54s

Also, they did really, really well on business from what I hear.

Don Kellogg 1m58s

Yep. One of the things that changed this time around, they did change the way they're reporting a little bit. So prior to this, they would report out, you know, the entire operational set of metrics for consumer and then a separate set of metrics for business as well as consolidated. They're no longer doing that. Right?

Don Kellogg 2m15s

So they're still doing some financial metrics put out for consumer and business. But the kind of line item visibility for consumer versus business in q one twenty twenty six has disappeared.

Roger Entner 2m26s

We're not fans, to say the least, of people taking away granularity. On the other hand, I understand why they did it, and I understand why T Mobile did it, and we'll talk in more detail about T Mobile. For Verizon, they needed to have a great consumer and a great business quarter. If only one was great, they got punished for it. Now they took visibility away, which makes people blind.

Roger Entner 2m53s

Right? And harder to understand what's going on. But it makes now, you know, the scorecard easier to do. And it's really interesting that T Mobile and Verizon provided less granularity. And in the same quarter, AT&T provided more granularity.

Roger Entner 3m13s

AT&T under Randall Stephensons and John Stephens was, like, so notoriously obstructionist with their financial reporting that it made it impossible to figure out what that company was doing. And under Pascal Disroches and John Stankey, it is night and day. They're providing so much transparency. It's like inconceivable of like that, which gives you faith in how the operation is running. Because if you're transparent, you can do that.

Don Kellogg 3m47s

You have nothing to hide. Right?

Roger Entner 3m48s

If things are going well. If things are not going well, or if you think things are gonna get worse, you take away granularity. But, yeah, it's quite interesting. So we always work here on our side to bring light where there's darkness, and so we reengineer all of these numbers and make them available for our clients. But, yeah, Verizon on the right path.

Roger Entner 4m13s

Couldn't get much worse than underhands. Right?

Don Kellogg 4m17s

Right. Well, good quarter, but still, I think, some ground to cover.

Roger Entner 4m21s

Oh, a lot of ground.

Don Kellogg 4m23s

Definitely congratulations for falling out of the q one hole that they've literally been digging for themselves over the last seven, eight, nine years.

Roger Entner 4m31s

Yeah. It's going in the right direction. How about that? Which is what you want. Right?

Roger Entner 4m37s

So he got net ads. He was a little bit light on revenue, but, hey, it is what it is. That's what you get when you add new lines to consumers, basically. Basically, a lot of their numbers came from Adeline.

Don Kellogg 4m49s

Well, they still they still need to tackle the account thing. Right? They still need to tackle the account thing. You can't just grow through lines.

Roger Entner 4m55s

They need to tackle the account thing. Right?

Don Kellogg 4m57s

But positive momentum.

Roger Entner 4m59s

One problem at a time. Right? Alright. Who else do we have?

Don Kellogg 5m3s

T Mobile.

Roger Entner 5m4s

T Mobile. Well, T Mobile took all the line numbers away. And so I I made the effort of going through it and thought of what did they actually do, because they now only report account level data. So if I look at the math that we did, and we're taking here several numbers, we look at comparables, we look at what they did in the past, we look at our own survey data that we have. And the three ways to analyze this, at least we can do this for the next four quarters, and we will be a lot better in next year, then we can just look at it on our data, because if the three numbers are converging, then I might need only one, which is our survey data.

Roger Entner 5m52s

So T Mobile, despite not reporting lines, had actually a really good quarter. Postpaid phone net adds were roughly 520,000. That's compared to first quarter twenty twenty five of four ninety five. I have them postpaid other net adds around 900,000 compared to eight forty two the year before. Total postpaid lines, about 1,420,000 versus 1.34.

Roger Entner 6m20s

Prepaid net adds, roughly flat. I have them at about 50 versus 45. Five g FWA, about four seventy compared to four twenty four. And fiber organic ads, I pegged them at about 50,000. And we have that by the you know, because they said, like, over half a million of total broadband.

Roger Entner 6m45s

But what was really interesting or what made things more complicated was The US cellular base that they threw in. But when you look at T Mobile now, you know, I'm repeating myself now a second time. Not numbers and facts make decisions. People make decisions. When you look at it, Srini Gopalan, the CEO, is running basically the same operational playbook for the sixth or seventh time in his life.

Roger Entner 7m12s

He did it for Capital One. He did it twice at Vodafone. He did it at Barty. He did it at Deutsche Telekom with Europe. He did it as CEO of Deutsche Telekom Germany, and now he's running it as COO.

Roger Entner 7m27s

Right? The playbook is very consistent. Optimize systems, drive our profitability, automate, digitize, and expand EBITDA. Right? We talked about it before that this is like a different T Mobile than under Jen Ledger and Mike Seawood.

Roger Entner 7m44s

It's like literally becoming a European operator inside a US wireless carrier. It's mind boggling to watch. And then the earnings call with the investment analysts is very worthwhile to listen because Mike Roland asked why postpaid churn, account churn rose 10 basis points year over year when management said, like, it's stable. Right? And Srini then said, like, you know, the underlying postpaid phone churn was only up about three basis points, but there are two cohorts that churn faster than the Gambri average.

Roger Entner 8m21s

And that's new customers and broadband only customers. Because they have lower lines per account, they weigh more heavily on on the account denominator than the line denominator. And so the fastest growing business is broadband, and that has structurally higher churn than wireless. But then extrapolate this out. Right?

Roger Entner 8m43s

So if the customer group that's growing the fastest churns the most, That's why they made the change. Right? Because then your churn is going up. At the same time, he's running a higher ARPU or ARPA, higher churn business that throws off more EBITDA. And so they're hiding the churn and are gonna, going forward, focus more and more as an EBITDA company because you have a more and more noisier customer count.

Roger Entner 9m14s

And the rationale that they will probably tell is, you know, Kellogg's doesn't tell you how many boxes of cereal it sells. Who cares? Right? And the same way they don't tell you well, that I don't know, how many cars they sell. Probably they tell you how many.

Roger Entner 9m30s

There are other people. There are people like us who tell you how many cars they sold. They can do that. So apparently, they're party poopers like us too. They're everywhere.

Roger Entner 9m38s

And so that becomes really, really interesting. The other thing that becomes really interesting is the fiber yield. How much passing yield do you get? And what's really interesting is if we look at Fibonet ads, you have AT&T with two ninety two, Verizon with one twenty seven, and T Mobile probably around 50. They don't have enough territory.

Roger Entner 10m4s

They're doing a really, really good job on a per passing yield. So for every passing, how many more customers do they get? And T Mobile, have about two and a half million passings, so their passing yield is around 2%. And that's great for an early deployment. Verizon, that's a lot more mature.

Roger Entner 10m22s

It's about half a percent. And AT&T is about three quarters of a percent. On one hand, they're working much harder because they have a newer build. On the other hand, their fiber passings are still anemic. At the the earning call, they did two JVs, and they got, like, go NetSpeed, green light network, and I three broadband for fifty fifty ownership for 2,700,000,000.

Roger Entner 10m46s

So they're buying customers here. Right? And it's gonna be interesting how that plays out.

Don Kellogg 10m53s

But, I mean, they still still wanna just buy pure play fiber, and the large pure play fiber providers are few and far beyond between. Right? I mean, you gotta walk your way down to smaller and smaller providers.

Roger Entner 11m5s

Exactly.

Don Kellogg 11m6s

It's hard to buy your way out of the problem. Right?

Roger Entner 11m9s

I know GoNetSpeed quite well because they're one of the people I ran reports on already. But Greenlight Network and I three broadband are, from what I can tell, pretty tiny. They're not in the top 20 or 30 fiber providers, at least the way I did my math when I go through all of them. So, yeah, it's slim pickings. And when you don't have a a copper retirement strategy, you're stuck with putting a lot of smaller people together.

Roger Entner 11m37s

Good news is we're building these reports on the 500 largest private operators, so maybe somebody will buy them.

Don Kellogg 11m46s

Maybe 498 largest now. Right?

Roger Entner 11m48s

We'll see. I'm sure we'll find, like, two smaller ones we can do.

Don Kellogg 11m52s

The number is shrinking every day as these guys get bought up is my point.

Roger Entner 11m55s

Yeah. No. Absolutely. But they're, like, 800 or so, so they have to buy a lot more.

Don Kellogg 12m1s

Right. Right.

Roger Entner 12m2s

Not that I think it's within that. What else did they have? Oh, they had this, and they continue to do

Don Kellogg 12m10s

The bloodbath for Charter and Comcast, right, on the stock price.

Roger Entner 12m14s

Here's the really, really interesting thing. Charter, on one hand, said Jessica Fisher, the CFO, said at the New Street Research Conference that they would be a willing seller. Everybody was like, what? And then Chris Winfrey was repeatedly saying they were were a willing buyer. Maybe they're both, but everybody was like, hey, really?

Roger Entner 12m37s

And then we have the Deutsche Telekom leak from Bloomberg. And if you didn't follow that drama, Bloomberg found out that Deutsche Telekom was looking to combine the mobile US with Deutsche Telekom in a supercarrier under one structure outside Germany. Now on one hand, the German government controls 28% of Deutsche Telekom, which is a blocking minority. Deutsche Telekom's board can't do everything without the German government having a say. The other constraint that they have is Deutsche Telekom owns 53%, give or take, I think it's a little bit higher than that, of T Mobile USA.

Roger Entner 13m22s

They need to have at least 50% to consolidate in their books. T Mobile US is like two thirds of the value of Deutsche Telekom. So it's absolutely critical to do that. And so the persistent rumor was that they tried to put this together so that they could buy somebody in The US and transform themselves from a telecom provider to a tech provider, which is, like, fascinating as heck. Right?

Roger Entner 13m52s

Because when Jonathan Chaplin was still at New Street Research, he wrote about how much sense it would make for Deutsche Telekom to buy Charter. And I know for a fact that neither one of the two thought about that. Now he put the thought in their head, and apparently, they looked at it. So I don't think this is happening because that leak kinda destroyed that thing putting together, because I don't think the German government can necessarily allow the German carrier to dilute itself and to dilute it down to, like, 18% and then move the national carrier into a third country to be listed there. I don't see that happening.

Roger Entner 14m36s

And at the same time, American investors are buying T Mobile for a really impressive growth story and not for a European carrier sideways story. Right?

Don Kellogg 14m52s

Right.

Roger Entner 14m53s

And so there was a very interesting conversation between Craig Moffett and Srini. And what was really interesting, because Srini deflected it and said, like, oh, this would only happen if a majority of the minority would be required. I don't see that happening. Because that deal from what Bloomberg wrote and Handelsblatt wrote was like with no premium. Why would a US wireless growth story investor agree to being diluted to Europe?

Roger Entner 15m27s

Makes no sense. That brings us to Germany. So I was at the Deutsche Telekom B2B conference in Bonn, which was interesting event. The two things that surprised me was one, that the whole sovereign cloud story is real and has legs. The reason for this is when president Trump cut off the head judge of the International Criminal Court from Microsoft and from all the credit cards, the theory of the American president being able to cut off somebody in Europe turned from a thought experiment into reality.

Roger Entner 16m9s

Rightfully, the European companies are making the decision that they can't be totally dependent on American technology. Look at it this way. Prime minister Carney or president Steinbein from Canada or Mexico shuts down an American company because the cloud provider is Canadian or Mexican, or the cloud provider or the technology provider is China. Right? That would be intolerable for us in the same way it's intolerable for them.

Roger Entner 16m40s

Deutsche Telekom plays it really well by price matching the big cloud providers and saying, come to us. It's the same amount of money. We are 90% feature through to AWS. The vast majority of all use cases run here, and we match prices. It becomes almost a no brainer.

Roger Entner 17m4s

And the paranoia in Europe about Trump is running high. Trump is the best salesperson with sovereign cloud in Europe, for hurting American business. Right? So it is what it is. The other thing that, like, blew me away, I felt like I stepped back twenty years in history, is Deutsche Telekom has a really strong system integrator business.

Roger Entner 17m26s

And in The US, we don't have that at all. Shame on me for my ignorance. I knew they had the key systems, but it never appeared to me like that. Don, one of the things that they're doing is they're selling literally n eight n libraries. Really?

Roger Entner 17m40s

One of the things that they show.

Don Kellogg 17m41s

Interesting.

Roger Entner 17m42s

We should sell our n eight n libraries to businesses. Mhmm. Yeah. But it's like really, really interesting stuff of, like, how people getting into AI and like that.

Don Kellogg 17m53s

Yeah. Very interesting. Cool. Alright. Well, you're still over there, right, for

Roger Entner 17m57s

a little bit? I am here until Sunday. On Monday, I am at ConnectX. I'm speaking three times. One is a keynote with Robert Walters, which I'm really, really looking forward to.

Roger Entner 18m12s

And then I'm moderating two panels. One of them due to one of our colleagues as a family incident. So then I'm I'm home for a day. Then I'm at the Citi conference connecting the dots, speaking over lunch and competing with food for attention. I hope I'm not losing too badly.

Roger Entner 18m33s

And so that's, like, the next week for me.

Don Kellogg 18m35s

Lots of airline miles. Right?

Roger Entner 18m37s

Yeah. But glorified bus riding. You know? It's I didn't like it as a high school student or elementary school student, and I still don't like it now. But, yeah, it is what it is.

Roger Entner 18m48s

Thank God you have now connectivity in the cloud or in the

Don Kellogg 18m52s

In the skies. In the skies. Yeah.

Roger Entner 18m54s

But yeah.

Don Kellogg 18m55s

Alright. Well, we'll talk to you next week.

Roger Entner 18m58s

Talk to you next week. Bye bye.