How T-Mobile plans to navigate convergence
A hot topic in the US telecom industry is convergence. Many believe it's inevitable that wireless, fiber and cable providers will become increasingly intertwined, first through bundled offerings and, later, through mergers and acquisitions.
During his company's quarterly conference call Wednesday, T-Mobile CEO Mike Sievert explained how he's planning to navigate the situation.
"We're interested in convergence because we have a lot to offer," he said.
However, Sievert said T-Mobile doesn't feel the need to purchase a wired network to complement its wireless network as a way to protect its business.
"I personally have no interest in having some kind of major change in our strategy as a company," he explained. He said that T-Mobile's goal is to be the best wireless provider, and that wireless "is the place where the future lies."
Instead, he suggested T-Mobile may look for some kind of wireline partner, and suggested that the kind of corporate pairing he would prefer would be a strategic investment that would not sit on T-Mobile's financial balance sheet.
"If we got involved, we would do it most likely with partners," he said. "It would just be smart to do it with partners."
Finally, Sievert said that T-Mobile would only pursue convergence if it benefits customers. He said that offering cheaper services through convergence is not necessarily a winning strategy. "So far, we haven't seen a benefit to convergence that really translates into consumer value beyond just a discount. There are plenty of ways to deliver customers discounts," he said.
"We'd be interested in it if it's something where we could add value and make the market better for customers and make some money doing it," he said.
Sievert's comments – made in conjunction with the release of T-Mobile's fourth quarter 2022 results and its 2023 outlook – are important considering many analysts see T-Mobile as a major player in potential telecom network consolidation to come.
Evaluating the matchups
"A wireless operator should buy Charter," wrote the financial analysts at LightShed Partners in their 2023 list of things for investors to watch. And, if that doesn't happen, they predict that wireless operators will pursue other transactions. "In the absence of a mega-deal, we expect wireless operators to make smaller market acquisitions."
The LightShed analysts aren't the only ones preparing for some kind of telecom convergence in the US.
"Verizon, AT&T and Charter all claimed that consumers want wireless and fixed broadband from the same provider," wrote the financial analysts at New Street Research in a recent note to investors. "There is a strong case to be made that operators offering both will have a competitive advantage, either because they can offer a better value or a better product (the better product has yet to be proven; the better value is here today)."
Importantly, the analysts argued that cable operators like Charter have a very strong position when it comes to convergence because they can offer mobile services to all of their cable customers, whereas wireless operators can only offer fixed wireless Internet offerings to a relatively small subset of their smartphone customer base. Further, the analysts argued that cable operators can offer mobile services at extremely inexpensive prices, in part due to their network offloading strategies.
As a result, "all four national wireless carriers [AT&T, T-Mobile, Verizon and Dish Network] will want to acquire terrestrial broadband assets. There are two in every market – the incumbent ILEC [incumbent local exchange carrier] and cable. Investors will want to own fixed assets rather than mobile assets in this environment," they wrote.
The New Street analysts added that they expect fiber companies like Lumen Technologies and Frontier Communications to begin adding wireless services to their home broadband offerings in order to give them leverage in any potential market consolidation.
"But there's the bigger opportunity, which is as we continue to message into the marketplace, the value and the benefits of a converged product, which really across our footprint, we're the only provider who can have those claims and have that better product and have that what we call gig-powered wireless," Christopher Winfrey, Charter's new CEO, said during his company's recent quarterly conference call, according to a Seeking Alpha transcript.
T-Mobile's earnings and guidance
Alongside his comments about convergence, T-Mobile's Sievert also discussed his company's quarterly results, and its outlook for 2023. The operator already pre-announced most of its fourth quarter results.
As noted by Reuters, most of T-Mobile's revenues in the fourth quarter were chewed up by aggressive promotions from the likes of Verizon and AT&T.
But T-Mobile said it managed to meet all of the financial goals it set out during its 2021 analyst day. That's noteworthy considering Verizon did not.
T-Mobile also outlined its expectations for 2023. The company said it expects to gain between 5 million and 5.5 million postpaid net customer additions during the year, alongside core adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of between $28.7 billion and $29.2 billion.
Analysts generally argued that outlook is relatively conservative, though they noted T-Mobile routinely sets moderate goals in order to exceed them later in the year.
However, amid widespread expectations of slowing growth in the US wireless industry during 2023, the analysts at New Street warned that T-Mobile might have to fight harder for new customers this year. For example, if Verizon decides to be more aggressive in the market during 2023, "costs will likely rise for everyone."
Finally, T-Mobile executives again boasted of the operator's 5G network, particularly its operations running over its 2.5GHz midband spectrum holdings. That spectrum – acquired through T-Mobile's purchase of Sprint – has primarily fueled the improvements in the speed and breadth of the company's network.
Neville Ray, T-Mobile's networking chief, said the operator expects to continue to expand its network during 2023. Specifically, he said the company currently covers 265 million people with its midband 5G network, and will expand that to 300 million by the end of 2023. And he said neither Verizon nor AT&T has disclosed when – or if – it might also cover 300 million people with its own midband network.
In terms of usage, T-Mobile officials disclosed that customers on the operator's Magenta Max smartphone plan use an average of 40 GB per month.
"The facts show that T-Mobile is the new network leader," Sievert said, nodding to several recent studies that show T-Mobile's 5G network ahead of those from its rivals.
However, Verizon on Wednesday also cited a study from RootMetrics showing that its network is "the network to beat for performance, accessibility and reliability in a majority of 125 metro markets."
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- The quiet brilliance of T-Mobile's 5G spectrum strategy
— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano