Q2 '26 Earnings - The Carriers Execute Their CEOs' Visions

Full Transcript

Don Kellogg 0m10s

Hello, and welcome to the three hundred and sixth episode of the week with Roger, a conversation between analysts about all things telecom, media, and technology by Recon Analytics. I'm Don Kellogg. This meeting, as always, is Roger Entner. How are doing, Roger?

Roger Entner 0m22s

I'm good. How are you?

Don Kellogg 0m24s

I'm good. Just got back from a little bit of r and r, but, uh, out of the frying pan into the fire, we've got earnings this week for pretty much everybody.

Roger Entner 0m33s

Yeah. Compressed week.

Don Kellogg 0m35s

Right. Who do you wanna start with?

Roger Entner 0m37s

We can go alphabetically. We can go

Don Kellogg 0m41s

Sure. Let's do AT&T.

Roger Entner 0m42s

Let's do AT&T. AT&T well, one of the overarching theme is that the carriers are taking away visibility, things go dark, and we can see anyway. When you look at AT&T, they added 432,000 postpaid phone lines. They continue to add quite well on the broadband side. When you look at the fiber net adds, there were 344,000 on the consumer side, 23 on business.

Roger Entner 1m16s

Internet air, they added 215,000, and on the consumer side 64,000 on business. So, you know, ARPU went up. When you look at the top line, things are humming, right? When you then peel things off the peel the labels off a little bit, you can deconstruct the numbers. So they had 200,000 FirstNet ads again, and I think it's maybe a third of them are phone lines.

Roger Entner 1m47s

When you look at it, business wireless spend went up significantly by about $64,000,000 That means their business lines went up. But if you say business ARPU is like near $35 a line, somewhere like that, that would be 600,000 wireless net adds, which it definitely is not. The increase came overwhelmingly from connected devices and IoT, but say it's like 90,000 or something like that, they added around 175,000 converged FIFO accounts. When we say it's one line that is converged, every converged fiber line had one phone line, which I think is too low. The outside footprint would be 167,000.

Roger Entner 2m34s

At two lines they're roughly breaking even, which is like around minus eight. At 2.3 lines, which is average family line, they would lose outside the footprint again. So either way you look at it, the company has been focused around convergence,

Don Kellogg 2m53s

and

Roger Entner 2m53s

it is executing around convergence. The problem is there are 39,000,000 fiber locations, and there are 100,000,000 locations where they have no fiber locations. So the convergence works where they have fiber. They need a better answer for how it works where they don't have convergence. But where it works, it works spectacularly well.

Don Kellogg 3m17s

Right. Well, I mean, like, to be fair, they are delivering more with fixed wireless than they have in the past. Yeah. So I think that's good. Right?

Don Kellogg 3m25s

So, like, on balance, right, where you don't have fiber, what can you sell from a converged perspective?

Roger Entner 3m31s

It would be FWA.

Don Kellogg 3m32s

Yeah. They've been holding back a little bit on FWA. They're doing better there marginally, so I think that's good. But I agree with the basic pieces, right, which is if convergence is the engine, right, how do you get more convergence?

Roger Entner 3m43s

Yeah. And during the q and a, John Stankey was prompted on that because he also talked about how much traffic and growth comes from from AI. And he was asked by a friend of the show, Craig Moffett, what they would prioritize, which was kind of a layup. Right? Of course, they're gonna prioritize consumer and mobile handsets.

Roger Entner 4m5s

And so it's not a never ending bucket of wireless capacity, even though they just spent $23,000,000,000 on the 3.45 and c band spectrum from EchoStar. So we know that FWA is not endless. And to support John Stankey's missive, we see in our data where FWA is constrained in rural areas, Stalin takes off, and when charter with Arlov comes in with fiber, it wipes out Starlink, and that is despite Starlink having now fiber like reliability numbers in our data. They're still significantly behind in speed for average usage, and I'm going to write about it more, But from a reliability perspective, they're phenomenal.

Don Kellogg 4m58s

Right. Similar to FWA, you would imagine there would be some survivor bias there as well. Right? If Starlink doesn't work for you because you have trees in your backyard, you're probably not gonna keep it.

Roger Entner 5m7s

Yeah. But for the people who use it. Right? Yeah. You know, I'm in Suburban Boston.

Roger Entner 5m12s

In two weeks, I have my Starlink installation, and so I will have that as a second connection in suburbia, and we will see how good this is based on a sample of one. And I figure I'm in a right now uncontested cell for Starlink, and my expectation is it will probably get more congested, because I see how the pricing goes up and down on installation and on the add on equipment fee, and I saw it between nothing and nothing to $10 and $200, $10 a month for the equipment rental, and I paid 55 for $100 with no equipment rental and $50 for installation. So I figured that was not bad, but I'm gonna test this, and so I'm gonna run so much analytics around this. It's not even fun. I wanna live up to the second part of our name, and so we're gonna run heavy analytics around it.

Roger Entner 6m14s

Alright. Let's talk about the next guys.

Don Kellogg 6m17s

Yeah. So if we're going alphabetically, then we'll do c for cable and do Charter and Comcast.

Roger Entner 6m23s

Alright. That's relatively short story. Both of them had extremely strong wireless. Comcast had best ever with 448,000 lines, and they lost 167,000 residential, which was more than expected. Charter had 406,000 mobile lines and lost 172,000 home internet lines.

Roger Entner 6m50s

Comcast interestingly said that half of their new lines came from free lines. And so finally, who tells us more rather than less than they did before. Right? So thank you Comcast for that data point. You know, the happy Comcast and Charter customers are buying more wireless.

Roger Entner 7m9s

We also see for both of them that their satisfaction numbers are improving. It's going to get harder and harder to pry off customers from Comcast and Charter over time. We're still waiting for Charter to close the Cox arrangement. Cox is private, doesn't report. We will have more data on the combined company than we have now on Cox, which is like near nothing.

Roger Entner 7m32s

So that's quite welcome. So yeah, Comcast Charter fighting the good fight, winning massively on on on mobile, and and struggling on on home Internet.

Don Kellogg 7m44s

Right. I think it's probably gonna get harder before it gets easier for the cable guys, but they're certainly been successful with wireless. I think, as you mentioned, Starlink and FWA and fiber are kinda hitting in from all sides. So, you know, interesting to see the broadband numbers, but they're certainly doing well on wireless. How about T Mobile?

Don Kellogg 8m2s

Let's talk about T Mobile.

Roger Entner 8m3s

Well, T Mobile also took away the numbers last quarter. When people go dark with their numbers, you know, our efforts shine more brightly. So the numbers that they reported went down. Postpaid net adds went down by 10%, their churn got a little bit better. So when we dissect their numbers, if we go back to the reporting, they did, Postpaid core net adds were roughly probably around 750,000, somewhere between seven and eight twenty, depending on how you do the math.

Roger Entner 8m37s

The other net adds, and that's a lot of it, is then like the fiber net adds and the FWA net adds, about 800,000. And prepaid probably they lost around 25,000. FWA I think was like $4.65, fiber was about 55, so that gives you total broadband net adds of about five twenty. We talked about last week that Sweeney is replaying his playbook, and it's coming out. Profitability went up significantly.

Roger Entner 9m9s

You know, this is playing as predicted. And the account numbers are getting noisier, all of that. They guided profitability up, they guided other things up, they didn't guide accounts up. So overall, T Mobile still growing faster than I'm not spoiling that even though Verizon had a better quarter than everybody expected, still T Mobile is at the top of the game. Unless you add the two cable companies together, then it's roughly on par.

Roger Entner 9m42s

But T Mobile is still top of the game, and now it starts throwing off even more money than ever before. Their core adjusted EBITDA margin is 50.2%. That's the first time ever that they topped 50%. So just like AT&T, T Mobile is optimizing around the objectives that the CEO have given them. And so according to their playbook, things are going really, really well.

Roger Entner 10m11s

Right? Yep. Now we have Verizon.

Don Kellogg 10m14s

Yeah. Now I think this is the most interesting one. Tell us about Verizon.

Roger Entner 10m18s

So Verizon, last year it lost 9,000 net adds. This time they were up by a 184,000. What was very impressive is that consumer also was positive. So we see a real turnaround here at Verizon, at every metric that we can look at. Churn went down, net adds went up, still carried mostly by the business group, and the business group became even more profitable.

Roger Entner 10m50s

The profitability on the business side went up even more so. Also, the cost to acquire and cost to retain went down. So this is really, really encouraging. And, you know, as a reward, they have extended Dan's contract for another year, and there's an auto renewal in there where both sides need to give notice, I think three months notice, which is a little bit short for Dan to say like, no, thank you, I'm done. But it's an auto renewal in there in his new contract.

Roger Entner 11m26s

And as we talked about here, you know, we expect Dan to be around. You know, our assumption very early on was, like, this was a two year rescue mission. I think Verizon has been rescued. Dan is here to to turn Verizon back into what it used to be twenty years ago.

Don Kellogg 11m45s

Yeah. I mean, I think it's really encouraging. You know, the Verizon has always been kinda slow out of the gate in q one, q two under Hans. You know, this is encouraging encouraging developments for them.

Roger Entner 11m55s

Oh, yeah. So there were positive positivity for everybody here. All of the companies well, I'm not sure about Comcast and Charter, but the three telcos are executing exactly how their CEO wants them to execute. And all of them are rightfully happy about that the company does what they want. The trade off is they leave some of the things on the table.

Don Kellogg 12m21s

Right. And we're seeing just a kind of repositioning across the industry too. Right? I mean, Verizon is much more focused on kind of aggressive deals while T Mobile is, you know, kind of trying to move up the value chain there. So it's interesting to see those two trading places a little bit.

Roger Entner 12m35s

Yeah. And and it's a more interesting industry than ever. What will be interesting, you know, when the iPhone comes out, what will happen? Because this time, for the first time, we don't have the baseline devices anymore. So we have only pros, which is historically one third, and we will see increases in prices.

Roger Entner 12m56s

I think we will see increase both on the baseline and on the pro models, and I don't think the carriers are in the mood to subsidies. I wrote a report about the mechanics around it and where this is going called demanded and hated, because people hate the device deals but demand them, and they reward them by staying around longer. BYOD customers are coming in happier, and they're leaving happier at a much faster rate.

Don Kellogg 13m28s

Yeah. Well, I mean, I think the subtext of Verizon doing a lot better earlier in the year means that there is a lot less likely to be a fire sale in q four like there has been in the prior years as well.

Roger Entner 13m37s

Exactly. There's less or or nothing to make up. Right. And so it's much more likely that they will make the number, which is healthy for the industry, that we don't have this, like in last q four, some irrational prices. Right.

Roger Entner 13m52s

Or at least long term irrational prices. I don't think we will see it again this year. I think competition is still strong, but we don't see the irrationality.

Don Kellogg 14m2s

Well, we'll be there to cover it when it happens, if it happens. Yes. But, uh, we'll talk to you next week. Thanks, Roger.

Roger Entner 14m9s

Thank you. Talk to you next week.