For the first time, T-Mo looks to establish a fiber footprint
T-Mobile US reported strong customer numbers and overall results for the first quarter of 2024, and raised its guidance for the full year. Perhaps most interestingly, though, the wireless network operator made an announcement ahead of its earnings that it was striking a joint venture deal to establish itself as the anchor tenant in a fiber wholesale arrangement that will enable it to provide fiber service in several mid-Atlantic states.
Here are some of the highlights from T-Mobile US’ strategy and current standing, as laid out by executives during the company’s first-quarter earnings call with investors.
On low postpaid phone upgrades: T-Mobile US saw its lowest-ever postpaid upgrade rate for phones in the first quarter of 2024: 2.4%. Three-quarters of the company’s postpaid phone customers already have a 5G smartphone, and John Freier, president of its Consumer Group, painted an overall picture of a competitive market where T-Mobile US is aiming to meet “the natural demand of upgrades”, rather that one where upgrades are driven with device subsidies. He noted that T-Mo has been “more targeted and surgical with some of our upgrade offers” and that the upgrade cycle for smartphone users is lengthening.
“It’s really kind of the best of both worlds when you have customers that are staying at incredible rates—record-low [churn] rates—and not staying for free devices, exclusively,” said Freier.
On enterprise: T-Mobile continues to emphasize its gathering strength in enterprise. Callie Field, president of T-Mobile US’ Business Group, called out the carrier’s recently announced win with Delta, which not only named T-mobile US as its preferred wireless provider but will also be deploying a T-Mo 5G hybrid network at its Atlanta headquarters. Field also name-checked the U.S. Coast Guard, which is relying on T-Mo for a ship-to-shore private network, and that T-Mo is working with Ericsson on deploying a SIM-based, security-as-a-service network slice.
“When you hear us talk about enterprise, how different it is from four or five years ago,” CEO Mike Sievert reflected during the call. Rather than trying to sell SIMs to procurement departments, he said, as T-Mobile US’ 5G strategy has unfolded, “suddenly we’re in strategic conversations because we have capabilities like network slicing, like SIM-based security and many other emerging 5G capabilities that are way out in front. And that’s not just getting us revenues in those advanced 5G services, but it’s also winning us all those smartphones that we used to struggle so hard and back then, had to price so hard to win. So it’s been this really nice evolution.” Sievert quickly added: “Make no mistake, we love low prices and we’re going to be the value leader here. But today we’re solving some of the most complicated connectivity problems that enterprises and organizations face, and that is a great place to compete.”
On its fiber JV and strategy: Analysts had a lot of questions for T-Mo execs on its newly announced deal with private equity firm EQP to form a JV that will acquire regional fiber provider Lumos as a basis on which T-Mo will launch a fiber-to-the-premise business. Sievert told investors: “I’ve been saying for a while that smart fiber partnerships would allow us to profitably serve even more broadband customers.”
Lumos currently reaches 320,000 households in Virginia and the Carolinas, providing internet service and home Wi-Fi; it has more than 7,500 route-miles of fiber. The company will transition to a wholesale model with T-Mobile US as the anchor tenant; T-Mo will take over the customer relationships with its own branding. “The JV will focus on market identification and selection, network engineering and design, network deployment, and customer installation,” T-Mo said in a release.
T-Mobile US plans to make a major investment in expanding the reach of Lumos’ fiber, but Sievert said that it would still be a “capital-light model” for fiber. According to Sievert, T-Mobile US is planning to invest about $950 million at close and another $500 million between 2027-2028, with a goal of having 3.5 million homes passed with fiber by 2028.
“Our fixed wireless strategy has always been about selling excess capacity where we predict normal cell phone usage won’t suck up that 5G capacity,” said Sievert. T-Mo is now serving millions of customers under that strategy and still expects to reach a customer base of 7-8 million FWA customers.
“What’s interesting about fiber?” he asked rhetorically, at one point in the call. “Fiber can be a strategy that relieves some pressure on the 5G network and extend the [total addressable market], if you think about it. Because some customers will, where we offer fiber in the future, be able to naturally graduate up to fiber—which is really a totally separate category.” He went on to say that there is pent-up demand for FWA in areas where T-Mobile US has “a long waitlist of people who applied” for FWA service, but where the company doesn’t have excess capacity. Some of those areas are served by Lumos, and that means T-Mobile US could offer such customers a fiber product rather than FWA.
Is this the first of many fiber plays? Could T-Mo be looking to establish a national, rather than a regional, footprint and start to look more like AT&T and Verizon? “Look, we don’t have anything to say about that other than our strategy is to opportunistically find ways that are very capital-light [and] very smart to put our brand in this space,” said Sievert. “We think this will lead to millions of homes passed, and that’s a great place for us to be. We’re going to continue to learn, grow, expand, and we’re open-minded about this—but we’re not interested in any wholesale changes that basically change who we are.
“No big, on-balance-sheet acquisitions are currently being examined,” he stated.
Peter Osvaldik, EVP and CFO of the carrier, characterized T-Mo’s strategy as “putting the T-Mobile brand and team to work selling a fiber product that complements our wildly successful 5G product” and that the JV and wholesale tenant arrangement sets up “an opportunity to generate superior returns than a purely disinterested investor could do, by virtue of our assets and our know how.
Make no mistake, he added: “We believe that our T-Mobile offers stand tall and stand alone and doesn’t ‘need convergence’. We just think that this is a place where we can make customers happy and generate a superior financial return, and that it complements a leadership product that we already have out there.”
The JV is also set up so that it will “have everything it needs from an equity standpoint to get to the 3.5 million homes passed, which we think is a nice threshold for us,” Osvaldik added. “It’ll be a multi-state footprint. It’ll be big enough to matter.”
On auctioning its 800 MHz: Dish Network had first dibs on 13.5 megahertz of 800 MHz spectrum currently owned by T-Mobile US, that the carrier was required to divest as part of its acquisition of Sprint. But Dish’s deadline to buy was April 1, and Dish couldn’t afford the cost—so T-Mobile US now has to attempt to auction the airwaves. Company executives said on the quarterly call that the auction process has already begun. “We have commenced. We have interested parties. We have non-binding indications of interest. There’s reason to believe that we will meet the reserve,” said Sievert. But, he added, it’s also “a little too soon” to know how things will go with that spectrum and whether it will be successfully auctioned or not. “Everything’s non-binding, but we’ll have more to say after we get past kind of the binding parts of this, so stay tuned,” he said.
On ACP ending: Absent a last-minute save by Congress, the Affordable Connectivity Act that has subsidized broadband (including mobile broadband) services for consumers will end today, and analysts have been asking all broadband service providers how that will impact their customer numbers and bottom line. T-Mobile US executives said that their ACP customers consist of “a couple hundred thousand” customers in its own branded prepaid portfolio, but with most of its participation happening via its wholesale partners, and that the company is working on helping customers to transition. “We think wireless is a not a category that customers are going to walk away from. So these customers need another alternative and we’re working closely with the partners and with the customers to find them another alternative,” said Michael Katz, president of marketing, strategy and products. He also pointed out that T-Mobile US has received the regulatory go-ahead on its acquisition of value-focused MVNO Mint Mobile, it will have another option to offer, including to customers who “may feel stranded from competitors.”
On rate plan changes: Asked about pricing changes that the company has made or might make, Sievert emphasized that “nothing we do is going to question or challenge our longstanding strategy of being the value leader in this market.”
But, he went on to say, “surely over the span of many years, what that means kind of changes over time. Costs have risen, changes have happened in a broader industry context … and I think customers understand that if there are changes … once every many years, in a world where costs change, they’ll understand and accept that we’ve actually made changes here and there over the past six months.”
Sievert said that “there may be more changes, particularly with older rate plans, but we’re not here to announce anything.” He also said that T-Mobile US is “going to jealously guard [its] value leadership.”
Overall, Sievert said: “Our model is working. It’s consistent, and our confidence in it only builds with each passing quarter of success.”
