T-Mobile (NASDAQ: TMUS) has been pointing to its expansion into the enterprise wireless market as a meaningful growth driver for the better part of a year. Indeed, T-Mobile is well behind its competitors when it comes to enterprise customers. At an investor conference last week, COO Mike Sievert mentioned the company only has a 2% to 3% market share.
Enterprise represents yet another way for T-Mobile to steal customers away from AT&T (NYSE: T) and Verizon Communications (NYSE: VZ). AT&T counts over 87 million wireless connections among its business customers -- 51 million postpaid and nearly 36 million connected devices. For reference, T-Mobile has fewer than 58 million total branded customers.
Continue Reading Below
But the real reason T-Mobile is excited about its progress with business customers is because management feels it's a strong leading indicator of consumer behavior.
Businesses spend a lot more on wireless than a family of four
Choosing a wireless carrier is a much bigger decision for a business with hundreds of employee phones to service than it is for a consumer household. Not only is the business looking to spend more money, there are significant switching costs to consider. Every employer needs to make the switch.
Businesses aren't just going to change carriers to save a few bucks a month because of those significantly higher switching costs. Therefore, they're much more likely to really review what a carrier like T-Mobile has to offer before signing a contract. They want a carrier that can live up to their needs, and if it can save the business a few bucks a month, that's good too. That's why Sievert sees T-Mobile's growing share of the enterprise market as a good sign more consumer customers are still to come.
A nationwide network
One of the big reasons T-Mobile is starting to attract more enterprise customers is because it only recently completed the rollout of its nationwide network. The network now covers 321 million people, and it boasts average speeds faster than AT&T and Verizon.
That kind of coverage is great for businesses because they don't need to worry about network availability in their offices all over the country. Additionally, employees that travel to worksites or customer offices shouldn't have any problems staying connected either.
From a retail perspective, there's a bit more work for T-Mobile. To that end, T-Mobile expects to open nearly 1,500 new retail locations this year. It had already completed 1,000 new stores by midyear, but the pace has slowed considerably. With nationwide marketing campaigns, T-Mobile's new retail locations should scale relatively quickly, but there's still work to do with educating consumers in new markets about T-Mobile's presence and network availability. Businesses signing onto T-Mobile is a sign that the network strength and value is there, and it's just a matter of getting customers in the doors in new markets.
Focusing on the big wins
Enterprise customers are big wins. Business contracts include thousands of new customers that are less likely to change carriers in the near future. What's more, it establishes a customer base in some of T-Mobile's relatively new markets, and those customers can spread the word about T-Mobile's service.
As more customers come on board, it seems likely T-Mobile will be able to attract more retail customers as well. As such, it won't have to make as many promotional offers and it can increase its scale, allowing it to establish significantly greater cash flow. And with plans to grow cash flow nearly 50% per year over the next couple years and a new buyback program in place, the ability to more easily attract retail customers is paramount.
10 stocks we like better than T-Mobile USWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and T-Mobile US wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of December 4, 2017