Should T-Mobile Investors Worry About Subscribers' Data Usage?

Image source: T-Mobile.

Recent data suggests that T-Mobile subscribers use twice the macrocellular throughput compared to the industry average, according to analysts at MoffettNathanson. And that estimate came out before T-Mobile introduced BingeOn, which allows customers to stream unlimited video on nearly every major streaming video provider.

During the MoffettNathanson Media & Communications Summit earlier this month, T-Mobile CFO Braxton Carter was asked about the potential impact of T-Mobile subscribers' high data usage. Considering T-Mobile has fewer spectrum licenses than any of the four major carriers, there's a potential threat of running out of capacity to handle the load its subscribers are putting on the network. Carter had a very measured response that should put investors at ease.

Getting consumers to 4G

T-Mobile says 80% of its data traffic is on its 4G LTE network and 52% of voice calls are on VoLTE. But those percentages dramatically overshoot their weight compared to the amount of spectrum T-Mobile has deployed as 4G LTE. To date, just 52% of its spectrum holdings are dedicated to the faster network.

It's already aggressively refarming its 1900 MHz PCS spectrum to redeploy as 4G LTE, but it needs to get more voice calls on VoLTE before it can really ramp up its refarming. T-Mobile is leading the industry in VoLTE migration, which is up from 9% at the end of the first quarter last year. Management believes it will be the first carrier to migrate all of its customers to VoLTE, and that aggressiveness will allow it to do more with less since it won't need to maintain its legacy network.

Additionally, T-Mobile has more spectrum capacity per subscriber than its largest competitors -- AT&T and Verizon . Cartercalculates his company has 1.3 MHz-POP per customer, while AT&T has just 1.14 MHz-POP and Verizon has just over 1 MHz-POP. Once it's able to migrate all of that to 4G, it will be in a strong position to serve more data to its subscribers.

Adding capacity with the incentive auction

Carter couldn't talk much about T-Mobile's plans for the incentive auction due to the imposed quiet period, but the carrier will be an active participant. It has the advantage of being able to access the reserve for smaller carriers that AT&T and Verizon will be locked out from bidding on.

Before the quiet period, Carter said T-Mobile will be able to spend up to $10 billion in the auction, but he believes it'll be able to get what it needs for about $1 billion. Nonetheless, T-Mobile is positioned well to get what it needs from the incentive auction, which will provide a nice boost to its spectrum holdings.

The only problem is that it could take as long as 39 months after the auction closes for T-Mobile to access that spectrum, and then several more months to deploy it. The CFO believes the wait will be much shorter, indicating the spectrum could be deployed by the end of next year. "Once the auction's over, there's a bunch of people that want to get paid. And they don't get paid 'til the [spectrum] gets repacked," Carter told the audience at the MoffettNathanson conference. "So, I think that might change the dynamic."

The impact of BingeOn is not that big

T-Mobile knew what it was getting into when it unveiled BingeOn. The worst-case scenario in its book is if its customers with data caps suddenly look like its uncapped customers.

A survey at the end of last year from P3 Group found that subscribers use less data with BingeOn than they did before. That's because BingeOn requires streaming at a lower bitrate compared to the usual high definition video subscribers were streaming on their phones previously.Carter says the addition of YouTube since that survey was conducted has had only a modest impact on data usage.

So, while consumers are streaming more video hours than ever before on T-Mobile's network, the actual impact on its capacity is negligible. That should allay fears that BingeOn will cause T-Mobile to become even more capacity-limited.

As T-Mobile shifts its subscribers to more LTE handsets and refarms its old spectrum, it should have no problem maintaining enough capacity for its subscribers' significant data usage. The addition of incentive auction spectrum earlier than expected could be a bonus, but T-Mobile has the potential to double its 4G LTE capacity before then, leaving it plenty of room to grow.

The article Should T-Mobile Investors Worry About Subscribers' Data Usage? originally appeared on Fool.com.

Adam Levy owns shares of Verizon Communications. The Motley Fool owns shares of and recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.