Amid stumbles by AT&T and Verizon, T-Mobile raises growth forecastAmid stumbles by AT&T and Verizon, T-Mobile raises growth forecast
In recent days, both AT&T and Verizon lowered their financial forecasts for 2022. And what of T-Mobile? The company on Wednesday raised virtually all of its financial and customer expectations.
July 27, 2022
AT&T last week lowered its 2022 free cash flow target by $2 billion to $14 billion. Similarly, Verizon last week lowered its 2022 wireless service revenue growth expectations to between 8.5% and 9.5%, down from a prior forecast of between 9% and 10%. Verizon also lowered its earnings expectations.
And what of T-Mobile? The company on Wednesday raised virtually all of its financial and customer expectations for 2022.
Specifically, T-Mobile now expects net postpaid customer additions of between 6 million and 6.3 million throughout 2022, an increase from its prior guidance of 5.3 to 5.8 million. The carrier also raised its 2022 expectations for earnings and free cash flow.
Figure 1: (Source: Robert K. Chin - Storefronts/Alamy Stock Photo)
T-Mobile's stock rose by almost 5% on the news, to around $140 per share. In comparison, shares in both AT&T and Verizon fell last week after they reported their second quarter finances and updated their 2022 guidance.
Bucking the trend
Perhaps most notably, T-Mobile has not increased its service fees in the same way that AT&T and Verizon have. In recent months both AT&T and Verizon have raised prices on either new or old plans, efforts designed to eke out billions of extra dollars from their existing customers. T-Mobile hasn't engaged in those kinds of pricing increases.
However, it's worth noting that T-Mobile has raised prices on some one-time fees. For example, the operator recently increased its "assisted support charge" and "upgrade support charge," for customers who add new lines or upgrade phones, by around $5. And, according to The T-Mo Report, the operator is also increasing its late fees by several dollars.
Nonetheless, financial analysts generally cheered T-Mobile's overall progress against its rivals.
"T-Mobile increased full-year guidance for all metrics, in contrast to lowered guidance at peers," wrote the financial analysts at New Street Research in a report to investors after the release of T-Mobile's second quarter results. "These trends reflect a very different organic growth picture than peers."
"They did it again," argued the financial analysts at Raymond James in their own report, noting that T-Mobile again raised its overall financial guidance for 2022 on Wednesday after doing so in April.
"T-Mobile delivered a very strong second quarter, with results ahead of our forecasts across the board, and a boost in guidance that implies upside to our 2022 financial and operational forecasts," wrote the financial analysts at Evercore.
Momentum in revenues, customers and FWA
In its second quarter earnings report, T-Mobile recorded a net increase of 723,000 in postpaid phone customers during the period, a figure that's ahead of most Wall Street expectations. T-Mobile's postpaid phone customer additions were slightly behind what AT&T reported for the period – 813,000 – but far ahead of Verizon's 12,000.
T-Mobile also reported postpaid phone churn of 0.80%. Churn is the measure of the number of customers leaving an operator. T-Mobile noted its churn figure was lower than Verizon's own churn figure for the period, a first for T-Mobile. That's important because Verizon has long been the market leader in terms of churn.
Financially, T-Mobile's core adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] clocked in at $6.62 billion in the second quarter, ahead of most analyst expectations and 10% above what T-Mobile reported in the year-ago quarter. However, T-Mobile also reported that bad debt increased year-over-year by $240 million. The increase in T-Mobile's bad debt is due to an increase in the number of customers who aren't paying their bills, likely a result of rising inflation. AT&T officials also warned that the company's customers appeared to be having a harder time paying their bills in recent months.
T-Mobile CFO Peter Osvaldik suggested that the second quarter could represent the "high water mark" for the operator's bad debt.
As for T-Mobile's fixed wireless access (FWA) business, the operator reported a gain of 560,000 such customers. Operator officials said that the majority of those customers are existing T-Mobile subscribers, and that roughly a third of them live in rural areas. Importantly, T-Mobile officials said that 50% of its new FWA customers are switching to T-Mobile's services from an existing cable connection.
T-Mobile attributes much of its momentum in the market to its efforts to build a speedy, nationwide 5G network in part with the 2.5GHz midband spectrum licenses it acquired from Sprint.
The operator said it now covers around 235 million people – or 87% of T-Mobile's customers – with that midband network. It added that 50% of postpaid customers are now using a 5G phone, and that 5G devices account for 55% of all of its network traffic
According to new findings from network-monitoring company OpenSignal, T-Mobile's midband 2.5GHz network is outpacing similar midband offerings from its competitors. In a report, the firm said it found that T-Mobile's "Ultra Capacity" 5G network is available in 41.9% of US counties where such signals have been detected. Meanwhile, Verizon's own "Ultra Wideband" network is available in just 11.7% of those counties. AT&T's "5G+" network is available in 1.4% of such counties. In general, "Ultra Capacity," "Ultra Wideband" and "5G+" refer to 5G networks that use a mixture of midband and highband, millimeter wave (mmWave) spectrum. OpenSignal calls such networks "Enhanced 5G."
"T-Mobile's wide reach of Enhanced 5G locations comes as no surprise since T-Mobile had a large head start in this type of 5G deployment," the firm noted in its report. "In fact, T-Mobile started to deploy midband 5G using its 2.5GHz band two years ago in April 2020, while AT&T and Verizon were only able to launch midband 5G in January 2022 following the release of C-band spectrum."
In terms of speed, OpenSignal reported T-Mobile's 232.2 Mbit/s edged past Verizon's 226.3 Mbit/s, but completely outshined AT&T's 161.1 Mbit/s.
In its second quarter earnings conference call, T-Mobile officials said they've already decommissioned two thirds of the 35,000 cell sites they intend to dismantle as part of the operator's merger with Sprint. T-Mobile expects that dismantling program to be finished by the end of the third quarter.
Overall, though, T-Mobile officials said it's still early days in 5G. Networking chief Neville Ray said FWA is the first use case for 5G. And CEO Mike Sievert said that 5G is "an emerging market."
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