T-Mobile (NASDAQ: TMUS) continued posting amazing numbers in an industry where everyone else is feeling its pressure. Freed from AT&T's (NYSE: T) or Verizon's (NYSE: VZ) high dividend payouts and legacy status, the "Un-carrier," led by iconoclast CEO John Legere, is, and I quote, "kicking a--."
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In the quarter, T-mobile posted 1.1 million net adds and 798,000 post-paid subscribers in an environment where everyone else was losing them. Wireless revenue was up 11.4%, and adjusted EBITDA minus spectrum gains was up 21%.
This is in stark contrast to Verizon, which shed 300,000 subscribers in the same quarter and posted a 6.1% decline in wireless revenues.
AT&T's consumer mobility segment lost 353,000 total subscribers, and revenue for that segment was down 7.1%.
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An unlimited world
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T-Mobile has been a disruptor in the telecoms industry attacking the duopoly of AT&T and Verizon, and it seems to be working. The company pioneered the unlimited data plan, and the strategy seemed to hit a tipping point this quarter as Verizon finally threw in the towel as the last company to offer its own unlimited plan mid-way through, as losses accelerated. Legere said they brought others to unlimited "kicking and screaming."
On the conference call, Legere said that for four days, the company's porting ratio, or the ratio of people migrating to T-Mobile from other another carrier, was negative with Verizon for only four days following the Verizon announcement, but then it snapped back to positive territory. T-Mobile finished the quarter with positive 1.7 versus Verizon, 1.6 with Sprint, and a huge 2.3 with AT&T. The company has achieved a remarkable four straight years and 16 straight quarters of positive porting ratios.
Adding insult to injury, Legere and his team also noted that after Verizon began offering unlimited, it's "best" network slowed dramatically by 14%.
T-Mobile is buying improvements
On top of this, T-mobile just invested $8 billion in 600 Mhz low-band spectrum in the recent FCC auction. This will plug a big hole in the company's existing network, as low-band spectrum is better able to penetrate buildings and rural areas.The company now has an average of 41 Mhz low-band spectrum in all parts of the U.S. and Puerto Rico. The auction increased T-Mobile's spectrum holdings by 39%. T-Mobile now has more low-band spectrum than any of its peers, according to management.
The reason this is so important is that even though T-mobile has been winning away customers from other carriers on a net basis, it has also had higher churn rates than AT&T and Verizon in the past. That means on a gross basis, it has historically won even more customers from the big two, but it has also given back customers at the same time. If T-Mobile can lower churn, the favorable porting ratios could improve -- or at least maintain positive status indefinitely.
This year, T-Mobile will be aggressive in deploying its new spectrum, and it's also planning to roll out 3,000 new retail stores, with roughly half going to T-Mobile and half to the Metro PCS segment. Legere gleefully taunted that many of these stores will be within view or across the street from a Verizon or T-Mobile store. T-Mobile has so far only been competing in two-thirds or three-fourths of the country, and it has not been able to crack certain segments that required more low bandwidth spectrum. Armed with the new spectrum, the company is launching aggressive growth initiatives.
With the telecom industry now able to speak once again about mergers, there is also the possibility that T-Mobile will pursue an acquisition -- though I can't imagine it would be acquired by a large company, as Legere has routinely disparaged Verizon, AT&T, and Comcast. The most likely targets would be Sprint (NYSE: S), with a similar low-margin customer base, or perhaps Dish (NASDAQ: DISH), which not only operates a core satellite cable business but also has substantial spectrum holdings. Dish needs to do something with this spectrum -- either sell it or build on it.. Selling itself to T-mobile may be an attractive option. Legere, for his part, says there are opportunities with adjacent industries that could potentially benefit consumers and shareholders.
Bottom line: T-Mobile is firing on all cylinders in an industry that is struggling to grow, and it has lots of optionality in the months and years ahead.
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