T-Mobile once again found itself taking the lion's share of the most valuable customers in wireless -- postpaid phone subscribers -- in 2017. By its count, the Un-carrier took 80% of all postpaid phone subscriber growth across the industry. That's actually down from over 100% of growth in 2015 and 2016. In the fourth quarter, T-Mobile took just 50% of all postpaid phone subscriber growth across the industry.
The introduction of unlimited plans from Verizon Communications and AT&T, as well as continued aggressive competition from Sprint, combined with a pullback of promotional activity by T-Mobile as it focuses on growing free cash flow, has resulted in declining market share gains.
So, can investors expect T-Mobile to keep up the pace in 2018, or will growth slow?
A disappointing outlook
With its fourth-quarter earnings release, management provided an outlook of just 2 million to 3 million postpaid net additions for the year. That compares to total postpaid additions of 3.6 million in 2017. (Note: That's total postpaid subscribers, not just postpaid phone subscribers.)
That said, management consistently provides very conservative guidance, and it made sure to note as much on its earnings call with analysts following the release. Still, it's a pretty significant decrease from management's guidance last year of 2.4 million to 3.4 million net adds.
But T-Mobile seems like it will be considerably less aggressive in 2018 than in prior years. T-Mobile wants to balance its growth with profitability, which means it will be less promotional going forward. Countering that, the company is showing its strongest customer retention rates thanks to its improved service and value over the years.
Competitors getting more aggressive
While T-Mobile takes its foot off the gas with its promotions, its competitors aren't backing off. AT&T, in particular, is bundling additional services with wireless. Unlimited subscribers all get free HBO, and they can take $15 off a DIRECTV service. On its earnings call, management says it will pursue more avenues to create bundles in 2018. Sprint has followed suit by bundling Hulu. In fact, Verizon is the only major carrier without a bundle. Its unlimited plan is priced competitively, but it's still at the top of the market.
Last quarter saw all four major carriers add postpaid phone subscribers, something of an anomaly in recent history.
The biggest driver of customer additions across the board is record-low churn rates across the industry. T-Mobile has relied on winning customers from competitors in order to grow subscribers. While porting ratios remain high, there are fewer customers changing carriers. And with the phone market growing increasingly saturated, there aren't many other sources for customer growth for T-Mobile.
So, can T-Mobile keep it up?
T-Mobile should be able to lead the market in total net additions once again in 2018, but it's unclear if it will continue its dominance. It's much more likely its share of net additions looks a lot more like the fourth quarter going forward as competition becomes more aggressive and churn continues to fall across the industry.
That said, T-Mobile should continue on its path to producing free cash flow and EBITDA growth that far exceeds the rest of the industry even as the competition eats into its growth in subscribers.
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