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 forty 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 Retner. How are doing, Roger? I'm good. So, Roger, it's that time of the year

0m27s Speaker 1

or the quarter. Month. The

0m29s Speaker 0

quarter. Yeah. Whatever you wanna call it. And we're doing an earnings recap. So we've heard from Everybody.

0m35s Speaker 0

Everybody. All the

0m36s Speaker 1

yeah. All in one cellular, but US cellular. Right?

0m39s Speaker 0

Everybody but US cellular who won't be a somebody at some point soon. Right? So Yeah. And I thought we could talk about this in order of reporting. Alright.

0m48s Speaker 0

I can kinda take us through Verizon. I thought this was an interesting quarter. You know, they always tend to have a little bit of problems in q one historically. It's just kind of their lightest part of the year. And typically, what we'll see is out of all the carriers, and we've talked about this before, but they are the most inflected towards q four and the least inflected towards q one.

1m6s Speaker 0

And what we saw this quarter was kind of in line with what we would normally expect, which is that they had some negative nets in q one.

1m14s Speaker 1

Yeah. I think one of the things we have to pre curse the whole thing is that there is an economic undercurrent. Right? And I felt like watching Star Wars a little bit at the February where I felt a disturbance in the force and a lot of people were crying out in agony, you know? And they kept crying, not like in the movie where they went silent, but they kept crying.

1m43s Speaker 1

Because everybody had a horrible January. And everybody, literally everybody, AT and T said it in an investor call, Verizon, I think, did it, T Mobile did not. It came out when you read through the numbers, and we will go through the numbers later on with T Mobile, and then the stock drops like a rock the day after. But everybody had a bad January. What was interesting, everybody pointed their finger to themselves, which is a very adult thing to do, is you first look for how, oh my God, this January is horrible.

2m22s Speaker 1

What did we do wrong? Right? And then the retail report for January came out and it was horrible. It was just horrible across industry wide. It doesn't matter what retailer you are, and to a certain extent, mobile is a retail business, it was universally bad in the industry.

2m42s Speaker 1

But everybody pointed fingers at themselves and said, there's something wrong with me. I have to do something better, harder. And all of them worked so much harder in February and March. A, that wasn't well known before the end of the quarter. It was not for us to talk about what's happening during a quarter because we see and hear things that are not for public consumption.

3m8s Speaker 1

And I'm not gonna get into insider trading stuff. Right? So we kept our mouth shut. We saw the things that was happening. And so with that backdrop, Verizon had a particularly bad January.

3m21s Speaker 0

Well, yes. You know, based on the metrics we typically look at. Right? So overall, in terms of total overall nets, they lost 65,000 lines in terms of retail postpaid phone, which we we really think of as the bellwether. They lost 289,000.

3m37s Speaker 0

That's relative to last year which was only a 114,000 they lost. The other thing I thought that was interesting was when you look at, like, what they did in q four, right, they basically kinda gave up their net ads from q four and q one plus or minus '6 or 7000 lines. And so there's a lot of really impressive promotional activity that happened in q four, and q one, it kinda backed out of the numbers.

4m0s Speaker 1

But they also raised prices in q four. Typically, make their numbers by raising prices on their existing customers. And we've talked about this over and over again, that they're wringing water out of a stone. And at one point in time, the stone isn't gonna take it anymore. And I think we're starting to see that.

4m20s Speaker 1

They've made their numbers made a number of lines, but you found out something really interesting when you'd been through the numbers. Right? Yeah. But they also lost number of accounts. But let's go back to you.

4m32s Speaker 0

Yeah. So one of things that I was looking at, and, you one of the things that we do is we go through the earnings numbers and compare them and, you know, do a lot of deep analysis in terms of what's going on. And there are a couple things that stood out that were really interesting. So one of the things that we noticed when we're going through the numbers was that the wireless retail postpaid phone number had changed between q one and q four. And so typically when you see changes in terms of reporting, we look out for that in q one because if you're gonna make a trend break, you do it in q one, you back cast.

5m1s Speaker 0

And so they did that. And the difference we saw throughout 2024 was that the new current numbers are about 600 and some odd thousand lines less than they were what they reported for the same time periods in q four for 2024. And so I reached out to the investor relations group, and that difference in 600, they changed the way they classified second numbers. So they had a promotion going on for a while where you could get a second number via an eSIM. So you have one phone but two phone numbers, And they were classifying that through 2024 as a postpaid phone line, and now they're classifying that second line as a connected device.

5m43s Speaker 0

Right? So it's functionally the same device, but you have two numbers hooked up to it. Right? So it's not a physical device in that respect.

5m50s Speaker 1

And we did an exorbitant amount of work looking at the sources of net adds. And the free lines number, and our dear friends in the financial industry who are listening to us, hi, guys, are missing that. There's so many free lines, and we can quantify them for T Mobile. And here we found more. And when we look at like, where do these lines come from?

6m18s Speaker 1

You know, the puzzle pieces, you know, when you told me what you found, it's like, yes, I have more of that thing that I thought was there. And now I know, now I can put a label to that placeholder and the unknown third line or, you know, secondary line that is like free ish shows up. Right? Right. And one of the things that, you know, as we do a lot of research, yes, there is prepaid to postpaid migration, but prepaid is still growing.

6m49s Speaker 1

There's such a meopic focus on postpaid subscriber growth that a lot of people are missing the total picture. And that is that there's still prepaid growth. The growth in the industry is actually bigger than what a lot of people look at. And one of the things we do here is we look total market. We don't think prepaid is to be ignored and discarded just because it's damn hard to do.

7m14s Speaker 1

But, you know, as I always say to our people, you know, we've done all the easy things. Let's focus on the hard stuff. And figuring out prepaid is really, really hard because they're like, what, 6,000,000 prepaid lines that are not reported, give or take. Don't wanna help people too much while listening. So really, really interesting dynamics.

7m32s Speaker 1

Anyway, I digress.

7m34s Speaker 0

Yeah. Well, I mean, think it's actually a good jumping off point for another thing that I think happened this quarter. It's been actually happening for three quarters in a row now. Another reporting change that Verizon made is they are no longer now reporting SafeLink, which is their lifeline lifeline brand inside the prepaid number.

7m49s Speaker 1

Because it no longer provides a lifeline to Verizon. Right?

7m52s Speaker 0

Well, when you pull SafeLink out, right, they lost over a million lines or almost a million lines via SafeLink in 2024. When they backcast that number, Roger, what you end up seeing is that they've actually grown in prepaid for three straight quarters. Right? Which is impressive.

8m7s Speaker 1

Just making my point because there are actually three segments. Right? There's postpaid, there's prepaid, there's lifeline. And it gets murkier and murkier and murkier.

8m16s Speaker 0

Well, nobody wants to report lifeline

8m18s Speaker 1

with lifeline.

8m18s Speaker 0

Right? Some of it is fraud, and there's all kinds of issues with numbers going up and down and the registry and everything else. Right?

8m25s Speaker 1

That's why T Mobile no longer reported it.

8m27s Speaker 0

Right. Exactly.

8m28s Speaker 1

I think it's a shame. I think you should report it. But well, it just makes what we do a little bit more valuable because we track that.

8m36s Speaker 0

The other thing that they changed in terms of reporting that I thought was interesting, and then I think we can move on to AT and T and T Mobile, is they changed the way they classify insurance and device protection. They're now rolling it up into service revenue. So service revenue numbers went up, but since they backcast, we can actually look back and we can see what proportion of revenue is coming in from device insurance and protection. Right? Yeah.

8m57s Speaker 0

And it turns out to be about 3% of service revenue is coming straight from And half of it is profit. Device protection. Right. And until you break your device, it's all profit. Right?

9m7s Speaker 1

Well, they share it with whoever their device insurance is. Whoever that is. And it's about a fifty fifty split Right. For most guys, give or take.

9m16s Speaker 0

But as they would say, it's money through the till. Right? So Yeah. So that was interesting to see that number broken out as well. So typically, we expect that q one's gonna be a little light for Verizon.

9m26s Speaker 0

I think to your point, the macro trends that we're seeing, and we're doing a lot of work on that as well. Give them a little bit of

9m31s Speaker 1

a pass.

9m32s Speaker 0

Right? Yeah. Yeah. The macro environment is tough. Right?

9m35s Speaker 0

Particularly when you're selling devices that are made in China. Right?

9m38s Speaker 1

Yeah. And with that all, you know, there was a lot of pricing action, and I don't know if we get to it. Because based on the Verizon numbers and Verizon then came out with a new price plan, then there was a reaction by T Mobile to it both on the postpaid and the prepaid side. And the prepaid side is clearly a reaction to the strong performance of Well, both of it is a reaction to Verizon, which I think was pretty interesting. But the very interesting thing, and we should talk about it more in a later talk, the new experience plans for T Mobile do no longer include taxes and fees, which is huge.

10m16s Speaker 1

I spoke to somebody earlier today and I'm like, T Mobile is becoming less and less the uncarrier and more and more the carrier.

10m26s Speaker 0

It's like a recarrier move. Right?

10m27s Speaker 1

Well, they're becoming everything they used to hate. Right?

10m32s Speaker 0

Yep. I'm on a T Mobile plan, I got my prices increased by $5 a line this last time around.

10m37s Speaker 1

Hey. It is what it is. Anyway, let's talk about AT and T.

10m41s Speaker 0

Yeah. So tell us about AT and T.

10m43s Speaker 1

AT and T had a strong quarter, added 324,000 PhoneNet ads. Interestingly, I always wanna point out, they also had 400 thousand FirstNet connections. You know, I leave it up to you what you think how many voice connections that is, but it's a good part. But still, 324,000 net adds, 261,000 fiber net adds, and the FWA was also really strong. And that's just consumer.

11m18s Speaker 1

And they added also business. And AT and T is the carrier that's like the most sceptic about FWA. The other thing that I thought was really, really interesting, and by the way, everybody was criticizing Verizon on their numbers. When you look at the things that they are actually rewarded on, service revenue, EBITDA growth, and free cash flow, they did really, really well. And when you look at the Verizon numbers, service revenue growth, EBITDA growth, free cash flow, they did really, really well.

11m51s Speaker 1

And forecasting, shocking surprise, T Mobile came out really, really, really well. So for AT and T, they are executing on their plan and it's working really well. Also, like the number of converged customers went up again by 300,000. So they are executing. They are rewarded by Wall Street for us.

12m14s Speaker 1

Business that used to be, how should I say, painful, how about that, is also showing signs of life. Coming back to the Verizon business one, they did 67,000 net ads on the mobile side for business. And they blamed a little bit the government for it. A year ago, they did 80,000. So, you know, if everything stayed the same, they made 13,000 less government lines.

12m42s Speaker 1

It's a ripple. Right? But we're coming back to AT and T. Yes, revenue came a little bit down again. But business wireline revenue came down like year over year 9%.

12m54s Speaker 1

But it's starting to bottom out. Wireless service was strong this quarter again. Fiber and advanced services picked up. And the legacy services, you you have to give up on the legacy services. They're gonna die.

13m7s Speaker 1

The question is, how quickly are they going to die? But EBITDA went up. EBITDA margin is 31.3%. So AT and T Business Group executed really, really well against secular headwinds that come traditionally from that legacy services because who wants to have a desk phone anymore anyway. Right?

13m29s Speaker 1

And so great quarter from AT and T.

13m32s Speaker 0

Yeah. But not to be outdone, let's hear about T Mobile.

13m35s Speaker 1

Well, T Mobile, in my opinion, and Wall Street disagrees with me, I thought did really well. They did full net ads. They did 903,000, which was not much lower than a year ago. Where I think T Mobile got a little bit punished for is it didn't tell anybody that January sucked. Right?

13m57s Speaker 1

So, oops, right? But they had 260,000, 63,000 accounted ads, total customer net additions, 1,900,000.0. When I look at the numbers, their prepaid to postpaid conversion was lower than it was before. When we back out their free lines, it was less than they traditionally do, which they generally do to pass their numbers. So from when I look at it, how solid the business executed, it was really good.

14m29s Speaker 1

T Mobile is nice enough to let me ask questions on their earnings call. And so I asked Cali Field about T Mobile for business and t Priority. And they were the fastest growing business mobile provider because they know how much Verizon does. And if you do good math, you can figure out how much AT and T business does. And so they had another really good quarter on business.

14m54s Speaker 1

They got hit on Wall Street because the expectations were extremely high and they didn't count on a bad January. Oops. Right? But no, they did really, really well. But we kinda expected that.

15m6s Speaker 1

And then when we come to the cable guys, they also performed as expected. Meaning, they had very good wireless numbers. Comcast added 323,000 wireless lines. The Charter folks added 514,000. You have to give them a lot of that as free lines.

15m29s Speaker 1

So there's fluff in that number, but they both lost on the fixed side. I think Comcast lost like 60,000, Charter lost 104,000 total customer relationships. And on the internet side, they lost 60,000, just like Comcast. I think for Comcast, that might go down because of their better price plan and their more honest price plan. But as long as you call FWA cell phone internet, you know when they stop deriding and mischaracterizing the things that kills them, they might finally have a chance of beating it?

16m3s Speaker 1

Because right now they're still laughing while FWA takes the numbers from them?

16m7s Speaker 0

Well, mean, here's the thing. I think it's easy to give away free phones, but if you're losing paid connections on the other side of that, I'm not sure I call that a win. Right?

16m15s Speaker 1

Well, the the free lines are there to stop the bleeding on the Internet side. It's like a Band Aid. The free lines are a Band Aid on a chest wound.

16m25s Speaker 0

Well, yeah. Is it a chest wound or is this a scrape on their knee? I think it's somewhere in between that. Right?

16m30s Speaker 1

It's not a scrape on the knee. It's not a chest wound, but it's a pretty sizable wound on the arm. Right? And a Band Aid is not cutting it. You need a doctor, sorry.

16m40s Speaker 1

But things are getting better. Their NPS numbers are going up and all of that. So as I said on NPR the other day, all of these guys are super tankers. It takes a while before they sink. They're all large, big companies, and they can sustain losses for a while.

16m57s Speaker 1

They shouldn't, but they do.

16m59s Speaker 0

So I think what I'm hearing from your kind of macro take is, like, despite a lot of secular headwinds, pretty much everybody had a decent quarter, if not a good quarter.

17m8s Speaker 1

Yeah. Because right now, that whole economic impact is just talk. We haven't felt the impact of the tariffs yet, and those will hit in the second quarter. Right now, is like, oh my god, what will happen? And nothing has happened yet.

17m26s Speaker 0

Well, it's likely to be second or third quarter. Right?

17m29s Speaker 1

Second or third quarter is when

17m31s Speaker 0

The announcement was on the April 2. Right? And ninety days from then is gonna be q three.

17m36s Speaker 1

If it's even ninety days. Right? And so right now, all what we see is a lot of people upset, running around in panic, but you know, that something will hit them in the face. They haven't been hit in the face yet. That's gonna come.

17m51s Speaker 0

We'll have a podcast for it when it happens. Right?

17m53s Speaker 1

Yeah. And by the way, cable, if you look in a price sensitive environment, cable is offering home Internet and mobile for the same price as the mobile guys are offering mobile. You have to see that too. It will be interesting, and we're looking at it.

18m11s Speaker 0

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

18m12s Speaker 1

Alright. Talk to you next week.