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 eighteenth 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 Entner. How are doing, Roger?

Roger Entner 0m22s

I'm good. How are you?

Don Kellogg 0m24s

I'm good. So, Roger, we've been pretty busy recently, so we haven't had a chance to cover the q three earnings. So I thought we could do kind of a mega episode here and run through what we saw in q three, what was interesting, and you know, maybe what we might expect in q four, what we think is coming. What do you think?

Roger Entner 0m41s

It's been busy, yes. And so yeah, this is like our catch up with also many things.

Don Kellogg 0m48s

So everybody's reported all the way from you know, A to V I guess, AT&T, Verizon, who do you want to start with?

Roger Entner 0m55s

Let's start with A, right?

Don Kellogg 0m57s

Yep. All right, AT&T. So how'd they do this quarter?

Roger Entner 1m1s

I thought they did pretty well. They had 400 and what, 29,000 net adds on the mobile side, very respectable. They had lowest churn again, which is really the foundation of their source for success. The fiber business is again a terrific foundation for them, and it's gaining momentum. They are starting to highlight the convergence, and it was very encouraging that they stated their convergence numbers again.

Roger Entner 1m36s

And you see they are proceeding. They're hitting now almost 40% of their customers, of their fiber customers are converged. And they're seeing benefits, right? Their fiber offer is terrific. We always talk about, do happy customers bundle or are bundled customers happier?

Roger Entner 1m57s

AT&T fiber customers are very happy. And they are picking up AT&T mobility service. And I think that's a big driver here. And so when you have a very good fixed offer, you get quality wireless customers. And I think that's what we saw here.

Don Kellogg 2m17s

Yeah. That was a good quarter. We did see that they were a little light on prepaid, but I think as we talked through some of the other providers, I think we've seen everybody's a little light on prepaid and that's been a continued trend over the last five, six quarters or so.

Roger Entner 2m30s

But it also is third quarter. Third quarter is always light on prepaid.

Don Kellogg 2m35s

Yep. They also had among the MNOs the highest upgrade rate in terms of folks that are getting new postpaid devices, which I think is notable. One kind of macro trend we've seen across the industry this year has been declining upgrade rates. From a financial perspective for the carriers, you know, sky high upgrades are not always a great thing because there's some degree of subsidization there. But you know, they're not losing folks to deals at other carriers because of the, you know, their best deals for everyone promotions.

Roger Entner 3m3s

Sorry to interrupt, but you're also seeing already the effect of their change in their next up plan. Traditionally, they offered, you know, for $5 you can upgrade your phone every two years. And they changed that nine months ago, a year ago, to you can upgrade your phone basically anytime for $10 And so you can get a new iPhone every year. Yes, you're paying $10 but you get that new iPhone every year. And that's what we're seeing in the upgrade rate.

Roger Entner 3m34s

And the other thing that's really interesting when you look at that construct, so they're getting $60 more a year from the people who like to upgrade, plus the trade in is higher. And so I would venture to guess that this upgrade plan is actually less costly than a longer upgrade cycle.

Don Kellogg 3m54s

Right. So I mean, when you trade in your phone to get a new device, right, the carrier turns around and resells that device. And the older it is, the lower the value is. And so there's less value return for that trade in. If you're doing something like, you know, letting anybody walk in with any device, which is great from acquisition and that's what Verizon's been doing a lot of recently.

Don Kellogg 4m12s

The downside of that is that the resale on like a Galaxy S9 or you know, what other drives you might have in your drawer is not great for the carriers. I think 10, right? Right, right, exactly.

Roger Entner 4m23s

And so this is a good driver for AT&T to lower the cost and to drive that customer base.

Don Kellogg 4m34s

Let's keep going on the M and Os.

Roger Entner 4m36s

T Mobile, right?

Don Kellogg 4m37s

T Mobile, yeah. Next one, if we're going alphabetically here. How'd T Mobile do?

Roger Entner 4m41s

They kick things out of the ballpark again. You know, one of the things we have to recognize is T Mobile is providing a lot of value, without a doubt. But they are now the price leader in the industry, right? If you go to the Go five gs, whatever the top line is.

Don Kellogg 4m59s

Go five gs Plus, yeah.

Roger Entner 5m0s

Yeah, which also lets you upgrade every year, but it's the highest price plan in the market. That has not stopped T Mobile from racking up new customers. They added what 865,000 postpaid phone net adds, 1,500,000 overall postpaid net adds. Phone churn comes in below Verizon, right? And Verizon is, I'm sure it bugs them to no end.

Roger Entner 5m31s

But the game is on, how can you lower churn? T Mobile is very confident in that it would be able to lower churn even further. They did really, really well. FWA numbers came in a little bit lighter than expected, but that number is churning. And it's eating into the cable guys broadband numbers, which we also saw.

Roger Entner 5m53s

And so, another really interesting, really good quarter. You know, I know we are working really hard in backing out their business numbers. With the success that they have in small, and I would say like in very small business, we're seeing them having a lot of success. They talked about wanting to get into medium business. It's going to be a lift.

Roger Entner 6m14s

The requirements of medium and large businesses and enterprises is different than that of consumers. But we see them having a tremendous amount of success. The more a business looks like a consumer, the more successful T Mobile is right now. And so what will be very interesting is, when will T Mobile for Business be so large that they have to break it out? Right?

Roger Entner 6m38s

When is it a meaningful part of the company? And I'm like waiting quarter after quarter for T Mobile to say, okay, here is consumer versus business. Here's the meaningful thing. So I don't know how long I can hold my breath. I hope it's not too long, right?

Don Kellogg 6m55s

Yeah, I think they have a good quarter and I agree with you on the go five gs raising the kind of price points on the high end. What I would say is that T Mobile is also competitive across the board. You know, they're competitive with T Mobile Essentials on the low end of postpaid as well as with MetroPCS and the acquisition of Mint Mobile, which is kind of a different animal with respect to prepaid. We see their ARPA and their ARPU going up as they kind of expanded up on the high end, but they aren't letting off the gas on the middle and low part of the market as well. So I mean, they're competing I think very, very well across the board in consumer.

Roger Entner 7m29s

And in our numbers, we still see that, you know, T Mobile still has the value halo similar to like Verizon still has the network halo. Reality and perception are not always moving in lockstep.

Don Kellogg 7m44s

Right. Right. So like when we look at folks that have gotten a new plan within the last year or so, the ARPU that we're getting from those folks distribution is roughly similar to that at like what we see at AT&T and Verizon, whereas folks that have been with them for more than a year, more likely to be on legacy plans. Those folks are paying on average, you know, 5 to $10 less for that service. And so Verizon's held on to network halo for a long long time.

Don Kellogg 8m11s

You know, will T Mobile continue to hold on the network halo or not network, the value halo moving forward, think is, you know, something we wanna keep an eye on.

Roger Entner 8m19s

Yeah. No. Absolutely.

Don Kellogg 8m21s

So we mentioned Verizon a couple times talking about AT&T and T Mobile. How's Verizon doing? Well, we

Roger Entner 8m28s

talked about Verizon. I think Verizon is very happy right now because they closed their Frontier acquisition. They had a little bit of a scare where one of our friends, Jonathan Chaplin from New Street Research said like Verizon is getting the deal of the century and they should actually pay more. 63% of shareholders of Frontier disagreed and they took the money and ran. And so, I think Verizon, we went really through them in detail.

Roger Entner 8m59s

Wanna talk cable first or?

Don Kellogg 9m1s

Yeah, let's do cable. We'll start with Comcast.

Roger Entner 9m5s

Comcast had another good quarter. They added 319,000 net adds, which I think is their run rate similar to Charter with like five forty five. They're doing very well there. And they need this to shore up and inoculate, you know, their fixed base. You know, especially for Charter, what's very positive for them is the expansions with RDOF, where it's a source of growth, whereas in existing markets, the broadband business is challenged.

Roger Entner 9m35s

Comcast wants to do things a little bit cleaner. They talked about spinning out some of the cable channels. So we're seeing in a way here, to a certain extent, a little bit of a cleanup happening. Altice did also not bad, 35,500. They got off the, you know, free service thing that they were on for a while.

Roger Entner 9m58s

So that's very respectable. The cable companies are going to continue at this pace simply on price. The question is, how long will this go? Craig Moffett did a report a while back where he's like, oh, it's at 32,000,000 is the breakeven point between churn and SOGA. Share of

Don Kellogg 10m18s

gross ads, SOGA.

Roger Entner 10m20s

Yeah, SOGA share of gross ads. He had a churn number in there. I think 32,000,000 would be very high for cable. I think it's coming in lower. When I run my numbers, I come up with a different number.

Roger Entner 10m34s

But he put that down and we did quite a number of analysis and went from a different perspective of like looking at the customer base and how happy these customers are. Because following our trajectory of happy customers, bundle and unhappy customers leave. But the good thing is like, especially Charter is focusing on Net Promoter Score and making customers happier. I think that's a terrific idea, not only for a cable company, but everybody of how can you make customers happier, because especially cable customers have been not very happy with their providers overall. But there are a lot of happy cable customers out there.

Roger Entner 11m15s

They make a lot of customers happy and they also make a lot of customers unhappy. That's how it plays. And then we have our friends at DISH, right?

Don Kellogg 11m23s

Yeah, speaking of, well, maybe not speaking of happy, but how did DISH do?

Roger Entner 11m28s

Well, you know, Dish lost 297,000 customers again, and they lost in all the other businesses as well. It was interesting, they pointed out that if you take out the ACP customers, they would have grown. My reaction was simply like, oh, and if you would have taken out the ACP customers in the previous quarters, you would have really, really sucked wind, right? You can always find a ray of sunshine even in a pretty dark place. I think the real news here is the three jumbo jets landing on one runway, and one of them doesn't really cooperate the way Dish would have hoped to.

Roger Entner 12m16s

The three jumbos are selling DISH satellite TV to TPG, getting more financing from outside including TPG, and then getting the existing shareholders to agree to a new deal. You know, as expected, the first two were pretty easy. That's the third one that's difficult, especially they're asking bondholders to take like a 20 to 30% haircut, and Charlie Ergen to make $1,500,000,000 for himself. That's the tough pill to swallow for a lot of people. They're like, why are we taking here such an extensive haircut?

Roger Entner 12m57s

They went back and forth with a minor sweetener, but it was no dice. And so, come on guys, the incentives have to be in line, and the pain has to be in line. Everybody knows that, you know, this needs to get done. It's not one side people hold the bag, right? So I think that's the rub here when we look at that overall.

Don Kellogg 13m19s

We've got one left, US Cellular. I know they're riding off into the sunset here. You know, they're still reporting.

Roger Entner 13m25s

They're still reporting dead men walking, right?

Don Kellogg 13m28s

Right, right, as they sell off pieces of the body.

Roger Entner 13m31s

They lost 28,000 postpaid customers. I think they grew a little bit on prepaid. Churn stayed roughly the same. You know, this is the swan song of UScellular. It swung to a loss for the first time.

Roger Entner 13m47s

The end is near, right? So, you know, we had elections, right? The elections probably made all the transactions around UScellular easier rather than harder. Elections have consequences.

Don Kellogg 14m2s

So what are you keeping our eyes on moving forward for Q4?

Roger Entner 14m5s

Well, Verizon needs to add, needs more gross adds. They promised that they will deliver a positive 2024. And that means a successful holiday season, especially around Black Friday. And traditionally, that was a very intensive promotion period for all of them, but especially Verizon. As part of our research into the iPhone 16 launch, we saw a lot of customers waiting for the promotions around Christmas and Black Friday.

Roger Entner 14m38s

And also we have now or are about to hit, you know, we had the teaser iPhone intelligent or Apple intelligence thing. Now we're soon getting 8.2, which is even more intelligent, which on the other hand is not that hard. But we're getting somewhere. And so we might see iPhone sales having a second wind, and with it a change in operators. Because a lot of people are buying a phone and here especially an iPhone as an opportunity to switch carriers.

Don Kellogg 15m12s

Yeah, mean, think we've both been pretty bearish about an iPhone super cycle, in part because there hasn't been a lot of increased functionality that's been released yet with Apple Intelligence.

Roger Entner 15m23s

And we looked at our data. We looked at our data. The data says it's not coming. Right?

Don Kellogg 15m28s

Right. Right. Should be interesting. Yep. Thanks, Roger.

Don Kellogg 15m32s

We'll talk

Roger Entner 15m32s

to you next week. Okay, bye bye.