T-Mobile and TWC pre-announce strong earnings, and look at top CES news
Last week, T-Mobile US announced very strong results for the fourth quarter of 2015, which included:
–917,000 branded postpaid net phone additions (ending number = 29.4 million).
–1.3 million branded postpaid net additions (ending number = 31.7 million).
–1.46% monthly postpaid churn (flat sequentially, but down 27 basis points from Q4 2014).
–469,000 branded prepaid net phone additions (ending number = 17.6 million).
T-Mobile US also indicated in the conference that earnings before interest, taxes, depreciation and amortization would come in at the high end of previous expectations ($2.1 billion for the quarter and $7.2 billion for the full year). It was a strong quarter, although T-Mobile US acknowledged Sprint probably had a good one as well. Both Sprint and T-Mobile US stood to gain the most with the launch of the iPhone 6s (Sprint gained carrier aggregation, which will allow for faster data speeds, and T-Mobile US gained the 700 MHz A-Block support), and it appears each took advantage of the opportunity.
At the conference, T-Mobile US briefly talked about their operational plans for 2016. Having a strong showing at the 600 MHz auction is definitely a priority and they appear to be willing to use up to $10 billion to achieve that purpose. Expanding their selling/marketing/retail presence in their recently deployed 700 MHz markets is also a priority. T-Mobile US further suggested network spending will be higher in 2016.
While these figures are not delineated in wireless earnings (except AT&T), my hunch is Verizon Communications and AT&T’s gains are coming disproportionately in business and government (lower churn, highly relationship and contract driven, multi-product discounts, etc.), and are offset by (very) small business and mass market loses. As we get through this earnings season, we will also try to derive a “mass market” vs. “enterprise” churn figure – a 1.46% level is a lot closer to AT&T Mobility and Verizon Wireless’ “mass-market” figure than most people think.
Bottom line: Right now, T-Mobile US has their hands full with mass-market gains from territory expansion (family plan growth in Decatur, Illinois, is likely a more profitable initiative than trying to unseat AT&T at Archer Daniels Midland). By the end of 2016, however, the difference between the market opportunities is going to be indistinguishable. T-Mobile US’ ability to penetrate enterprise will directly depend on the quality of their broadband partner (which logically should include cable and/or Level3).
Speaking of cable, Time Warner Cable surprised everyone with their early January pre-announcement (they also received approval for their merger from the New York Public Service Commission – it was truly a good week). The good news included over 1 million net additions in 2015, for both digital phone (1.032 million) and high-speed Internet (1 million). Time Warner also indicated they grew video connections by 32,000. This implies Q4 net additions of 50,000 for video (38,000 net loss in Q4 2014), 280,000 for high-speed Internet (168,000 in Q4 2014) and 223,000 for digital phone (295,000 in Q4 2014).
While cable companies do not announce their monthly churn, it’s likely TWC’s figure is continuing to decline. With the housing market beginning to pick up and moving on the rise, places like North Carolina, Texas and Southern California stand to disproportionately benefit. It also means AT&T’s focus on the national offer of $200 for wireless and TV services probably cost them some broadband net additions.
The other interesting trend for TWC is their growth in home (digital) phone service. With the rise of unlimited voice and data plans (and technical options such as voice over Wi-Fi), many gave up phone for dead – at best, it served as a churn reduction tool. The gains shown at the end of last year and beginning of 2015 were dismissed as window dressing for the Comcast (or Charter) merger. The pundits (including us) were dead wrong here: TWC is up to 6.3 million phone lines (21% penetration) at the end of 2015 after languishing at the 5 million level for most of 2013 and 2014. Phone has become an even more important lynchpin to the triple play (especially against Dish and DirecTV out of region).
Bottom line: If digital phone has become the “breadsticks” of TWC’s (and the cable industry’s) offering, that’s OK. Revenues and profitability continue to rise and the incremental monthly costs of adding phone subscribers to existing customer relationships is fairly minimal. Phone is supporting video growth and keeping high-speed Internet churn low. This is an effective bridge strategy until the merger is completed and the new Charter/TWC/Bright House wireless plans are articulated.
CES observations
Here are the collective observations from CES:
1. Amazon.com was embedded throughout the show and is boldly staking its claim to be the home hub. Samsung Smart TV be damned, Amazon is steadily striking partnerships and designing as much interoperability into their product as possible. Vivint announced the integration of Amazon Echo into Vivint’s Sky platform and prominently demonstrated their technology at the show (more on the technology with a CNet demo here): A nice marriage of Vivint’s monthly recurring with Amazon’s equipment revenue models.
2. Electric car technology is in the early innings. At the show, Chevrolet announced the mass availability of the Chevrolet Bolt (pictured), a $30,000 car (after rebates and tax incentives) that can go 200 miles on one charge. The battery system enables quick charging (up to 80%) in 30 minutes with a full charge in less than 1 hour. Also at the show, scandal-plagued Volkswagen introduced their BUDD-e concept vehicle, which claims to be able to go 373 miles on one charge. What was unveiled in Las Vegas is likely a vision of what will actually be rolling off production lines, but breaking the 300-mile barrier would be significant (six 50-mile round trips might be enough for many commuters for an entire week).
3. Wi-Fi is about to get a sizeable upgrade that extends its data reach. While the focus of CES is on devices that use technologies, the Wi-Fi Alliance made a very big announcement with the finalization of the HaLow standard. Instead of using the traditional 2.4 GHz or 5 GHz bands, HaLow uses the unlicensed portion set aside in the 900 MHz band. As we have discussed many times with respect to carrier-licensed spectrum, lower frequencies carry signals farther and require less power than higher ones. The interoperability of the HaLow standard with existing 2.4 GHz and 5 GHz standards allows new devices (especially wearables) to work out of the box. It will be interesting to see how wireless carriers, and particularly T-Mobile US, work with this new standard to improve in-home and in-office coverage. A good article on the topic from BGR is here.
However, if you need shorter ranges and higher speeds, the introduction of the TP-Link 802.11 and WiGig router (pictured) is the bleeding edge of new spectrum use (60 GHz). This is an early model of what is sure to evolve into a new and different way to cut the cord (perhaps even from cable modem to the TV or computer depending on the distance between devices), but the promise of up to 4.6 gigabits per second (not a misprint) has some early adopters taking a serious look at the technology. A good overview of the router and its capabilities is here and the announcement from TP-Link is here.
Jim Patterson is CEO of Patterson Advisory Group, a tactical consulting and advisory services firm dedicated to the telecommunications industry. Previously, he was EVP – business development for Infotel Broadband Services Ltd., the 4G service provider for Reliance Industries Ltd. Patterson also co-founded Mobile Symmetry, an identity-focused applications platform for wireless broadband carriers that was acquired by Infotel in 2011. Prior to Mobile Symmetry, Patterson was president – wholesale services for Sprint and has a career that spans over 20 years in telecom and technology. Patterson welcomes your comments at jim@pattersonadvice.com and you can follow him on Twitter @pattersonadvice. Also, check out more columns and insight from Jim Patterson at mysundaybrief.com.
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