T-Mobile’s Business Push, Technology Advantages, and 5G Slicing with Daryl Schoolar

Full Transcript

Don Kellogg 0m10s

Hello, and welcome to the two hundred and forty 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. How are doing, Roger?

Roger Entner 0m22s

I'm good. How are you?

Don Kellogg 0m23s

I'm good. So, Roger, there's been a lot of things coming across the news recently about potential recession. Are we in a recession or not? Is the Fed gonna do something about it? All this sort of stuff.

Don Kellogg 0m34s

And we wanted to talk spend a little bit of time talking about, you know, what does this mean for wireless. Right? Let's hear your thoughts on this.

Roger Entner 0m41s

Well, when you look at it, we know from experience that wireless in particular and telecom in general is a recession resistant industry. We're seeing in our data over and over again that switching carriers is not very high on the list of how people wanna optimize their bills if they have to. Right? But they're looking at rationalizing their their spend. But overall, I think we will see, and we are seeing already, the MSOs are growing quite significantly, and we saw it this quarter again.

Roger Entner 1m18s

And they're growing on on free lines, which, hey, you know, if you wanna give it away, you know, a lot of people are are takers. Right? But they also are able to keep a lot of these free lines that are staying because, you know, $25.30 dollars a line is pretty attractive. But you can have it even cheaper. You know, our friend of the show, Peter Adden with Mobile X, if you are not a heavy data user, that's about as cheap as you can get mobile.

Roger Entner 1m48s

But overall, I think we will see a segmentation in the market. I think we will see and continue to see offers for low usage customers that are going to MVNOs. We will continue to see, I think, cable to be quite strong. But for cable, this is a defense of home broadband strategy rather than a standalone mobile strategy, even though I'm certain, pretty certain, that the cable guys are still making money on that. Not, you know, run to the bank and laugh all the way money, but you have to look at it in a total perspective because their pricing is we give you home Internet and mobile for the same price that the MNOs are giving you mobile.

Roger Entner 2m34s

But we also see that the satisfaction numbers are lower for the cable guys than that of the Verizon customers, even though that the Verizon customers are paying more. And we know at the same time that people with lower spend are typically happier. Well, no kidding. Right? Because they get a reasonably similar or in the case of cable yeah.

Roger Entner 2m57s

In the case of cable, a reasonably similar experience because I think they're still struggling with the 90% of traffic that is going over their router that's driving down their satisfaction numbers. But I think the carriers overall will hold steady, if not continue to increase pricing. Because telecom has been below the inflation rate price increases. I know people look at it, but if you look at the proverbial eggs, right, the pricing there and when I go into a restaurant, the pricing increases there have been astronomical compared to what we have seen in telecom. And when you look at the wireless CPI that the Department of Commerce publishes on a monthly basis, we are down actually.

Roger Entner 3m46s

Actually, we're in an almost deflationary period. We're in a declining price scenario in telecom. So I don't think there will be a significant decline. And the only people who are screaming are analysts from Europe who, like, come here and say like, oh my god, this is so expensive. And when I go to Europe, I'm like, oh my god, I only have edge service, right?

Roger Entner 4m12s

Which The US carriers retired, like, ten years ago. And if I go a little bit outside into the Black Forest, I'm literally in the woods with no coverage, which is like, wouldn't happen here.

Don Kellogg 4m23s

Well, if you're hanging out in the Black Forest, maybe you should just be enjoying the Black Forest instead of trying to get a cell signal.

Roger Entner 4m28s

Well, I live in the Black Forest when I'm in Germany, so I am enjoying myself. But yeah. No. My wife always says, like, we're sleeping with open windows there because the humidity is low, but she always says, like, it's the best air ever. But when I'm in Germany and work for from Germany, then I'm in the Black Forest.

Roger Entner 4m44s

But if I drive, like, three, four miles out, coverage gets really bad, and I'm living in one of the large cities in Germany when I'm there. Here's the other thing. Like, a friend of mine I went to high school with is a nine one one dispatcher there. And they still are using CB radio for the emergency vehicles and ambulances. Because even though they have access to all three networks in Germany, Deutsche Telekom's T Mobile network, the Vodafone O2 network, the Vodafone network and the O2 network from Telefonica, they have coverage holes in the city.

Roger Entner 5m25s

So they refuse to go off CB radio, their own stuff. It's ridiculous. It is ridiculous. So when I go to Europe, I'm always like, oh my god, if you go a little bit outside the big city, how horrible the coverage gets, how horrible the service is, and when you pay a little bit attention, you even see it there. They have like government initiatives of like, let's close the coverage holes in less populated areas.

Roger Entner 5m51s

It's nuts. And then nothing happens.

Don Kellogg 5m53s

Yeah. I think what we've established here, and I think this is true, right, is that older networks are cheaper. Right? Newer networks are faster in The US, but they're also more expensive to build and to operate.

Roger Entner 6m4s

They're more expensive. Yes. When I'm on my European carrier, I pay like $7 a month.

Don Kellogg 6m11s

Right. But here's here's my counterpoint. Right? When we ask folks, what are you gonna do to save money on wireless? Right?

Don Kellogg 6m17s

The first couple things that people are gonna say, right, is they'll say, okay, well, I'm gonna put off getting a new device. Right?

Roger Entner 6m23s

Which is now free for a lot of people.

Don Kellogg 6m26s

Or I'm gonna switch to a lower MRC plan at my current carrier. Right? And then one of the things we saw as an impact from the tariffs was that people actually were less likely to switch providers.

Roger Entner 6m36s

Yep.

Don Kellogg 6m37s

Because there's so much uncertainty. Why do you wanna add more uncertainty to your life?

Roger Entner 6m40s

But if they do, they're more interested in prepaid.

Don Kellogg 6m44s

Right. Here's my point. From a core use case perspective, prepaid is probably good for a lot of people. But there's a stigma there attached to it. Right?

Don Kellogg 6m52s

There always has been. If you know how much data you're gonna use, you don't need a hotspot, you're not gonna be traveling overseas a bunch, then prepaid is actually a pretty good option for a lot of people, and it's a lot less.

Roger Entner 7m3s

Yeah. And 50% of Americans don't have a passport. So even if they want to, they can't, or they will be an illegal alien in Canada and Mexico unless they're really good swimmers, and they make it to Cuba, and then they can enjoy the hospitality of the local law enforcement because they think you're an American spy. But the other thing where where it gets really bad is a lot of the European carriers have competed all profitability out of the market. Their profit margins are now less than their weighted average cost of capital, which then you fall into that trap that you don't have the money anymore to invest into the network.

Roger Entner 7m44s

And you end up in, like, investment hell and in network hell. Yes, it's cheap, but they have five g networks. And they're really good five g networks when you're inside the really the large cities. And the more you go outside and the more it falls apart, which creates a digital divide that is a lot bigger than than it is here in The US. Even though the digital divide is maybe geography, run by ethnicity, at least for wireless.

Roger Entner 8m11s

Because in wireless, we continue to see over and over the laggards, the ones who are left behind are actually whites, not the other people in the country. And so the cautionary tale, what I look to, is Europe, who is then clamoring of why are we so behind The United States in all things digital? And I'm like, well, it starts with your cheap wireless networks. That's what it comes down to. And I think the carriers here are smart enough, or I hope that the carriers are here, smart enough not to engage in a race to the bottom where nobody wins.

Roger Entner 8m46s

Right?

Don Kellogg 8m46s

Yeah. I mean, if you're putting your carrier hat on, and then we do that all the time. Right? You obviously wanna higher ARPUs relative to lower ARPUs. That having been said, sources of of new net ads in the industry have pretty much dried up.

Don Kellogg 8m59s

It's a switching game.

Roger Entner 9m0s

Yes. But we will still have, like, on my account, 7,000,000 net ads this year.

Don Kellogg 9m4s

Right? Yeah. But how many of those are gonna be free lines? Right?

Roger Entner 9m7s

Maybe half.

Don Kellogg 9m9s

Yeah. So we're down to three. Right?

Roger Entner 9m11s

Yeah. But that's still a ton. And that is with diminished immigration.

Don Kellogg 9m16s

I think there's room for both prepaid and postpaid. I think that the market is swinging towards prepaid. And if the economic situation continues on the trajectory it's on, we'll see more and more growth from prepaid.

Roger Entner 9m28s

And I would rather be in telecom than in anything else.

Don Kellogg 9m33s

Absolutely. Absolutely. But I mean, the fact of the matter is it's like, if you need to make a call, you can make that call just as easily on a prepaid plan as you can on a postpaid plan.

Roger Entner 9m40s

Yeah. No. No. And for a lot of people, prepaid is a really good deal. Mhmm.

Roger Entner 9m44s

You don't get all the bells and whistles necessarily.

Don Kellogg 9m46s

No free tacos. No free tacos. Right?

Roger Entner 9m49s

No free tacos. No free frosty. Well, No. No. You can get that.

Roger Entner 9m54s

I think with MetroPCS, you can get free tacos and free I think they did that. Unless I'm hallucinating because I'm working too much on AI stuff. But I think in The US, there's something for everybody. No. There's almost something for everybody's budget.

Roger Entner 10m12s

Let's leave it at that. But I think in the lower income segments and then the lower spend levels, there's something for everybody. And I think that is fantastic.

Don Kellogg 10m22s

And I think if we get to a point where there's severe economic pressure, the carriers would rather rerate you down to a prepaid plan than lose you as a customer.

Roger Entner 10m30s

But here's the thing. You and I have done so much recession planning. As they say, economists predicted 12 of the last five recessions. We did recession planning for more than the last five, real and imaginary. And when we look at it, the upper half, if not more, of the income bracket is unaffected by a recession.

Roger Entner 10m53s

It's the lower half of the population of income earners in the country that is being affected. And the less you make, the harsher the consequences are. And for these people, there are options. And like when I look at how this all flows, it's basically three buckets. Postpaid flows into prepaid, flows into lifeline and other government assisted programs.

Roger Entner 11m16s

And a lot of them are not reported. And as the economy expands and declines, they flow from one bucket into the other. That's like some of what what our dear friends on on Wall Street are missing is, well, like when we come out of a recession, that's where they came from because they were un but not reported. And they're like, what, 6,000,000 unreported prepaid lines or so. That's where the numbers come from.

Roger Entner 11m40s

And by the way, you know, we're halfway into a recession. We're one quarter of declining thing. But if we run into a recession and people were like, oh my god, a lot of the lines are disappearing. Where are they going to? Well, I would point at Lifeline.

Roger Entner 11m54s

Right? Look at the Lifeline numbers.

Don Kellogg 11m56s

Well, we'll keep an eye on it. I think it's gonna be interesting. I think there are a few other shoes to probably drop. Yep. But we'll we'll stay on top of watching.

Don Kellogg 12m3s

Yeah. I'm sure we'll keep discussing it as it happens.

Roger Entner 12m6s

Exactly.

Don Kellogg 12m7s

We'll talk to you next week.

Roger Entner 12m8s

Talk to you next week. Bye.