T-Mobile Beat Rivals AT&T and Verizon. Now It Needs to Copy Them.
By
Adam Clark
Follow
Published: Oct. 11, 2024 at 2:30?a.m. ET
Share
Resize
Reprints
Listen
(5 min)
Referenced Symbols
 T-Mobile disrupted the wireless market with clever marketing, lower prices, and then 5G. Its next act—rolling out more fiber to U.S. homes—could prove challenging. Photo: Diane Bondareff/AP Images for T-Mobile
T-Mobile US
TMUS
-0.30%
has spent years dominating the wireless conversation. The self-branded “un-carrier” used lower prices, more flexible contracts, and finally a broad 5G rollout to win customers from larger incumbents AT&T
T
-2.00%
and Verizon Communications
VZ
-1.11%
.
More recently, T-Mobile has taken a lead in providing broadband to homes using its 5G connections, a business known as fixed wireless.
Shares of T-Mobile have returned 86% over the past three years, against a 33% return for the S&P 500 index. Over that stretch, AT&T has a total return of 33% while Verizon
VZ
-1.11%
has been flat.
But for T-Mobile, the easy gains may be coming to an end. While the company recently raised its estimate for fixed-wireless subscribers to 12 million by 2028 from eight million by 2025, the pace of additions is slowing. In the second quarter, it added 406,000 fixed-wireless users, down 27% from the same period last year.
“We believe fixed wireless access will end up with roughly 10% of the primary home broadband in the U.S.” Raymond James analyst Frank Louthan said. “The main drawback for fixed wireless access is the speeds, which, while more than sufficient for all consumer needs, fall short of what consumers have been conditioned to think they need. As such, it will be more of a niche product,”
Now Playing: Verizon's CEO on How Phones and Networks Work So Differently Now
Visit our Video Center
To continue taking market share from traditional cable players, T-Mobile is now turning toward fiber connections to the home, a costly outlay that has weighed on rivals Verizon
VZ
-1.11%
and AT&T.
S&P Global Market Intelligence expects residential fiber subscribers to reach around 30 million in 2027, from around 23 million this year. Fixed wireless meanwhile is seen growing to 16 million by 2027, from 11 million this year.
Because of fiber’s premium prices, S&P expects the total annual revenue from fiber to be roughly triple the revenue generated by fixed wireless.
“There’s nothing that beats fiber in terms of the marginal cost of carrying the next unit of traffic,” AT&T CEO John Stankey said in a recent interview with CNBC. “And as a result of that, it’s always going to be more cost effective and better performance than any other technology out there. And it will carry the lion’s share of workloads, and that’s why we’re making the bet on that infrastructure investment.”
Verizon’s and T-Mobile’s latest deals suggest they’re adapting to a fiber-first future. Verizon struck a deal valued at $20 billion for Frontier Communications
FYBR
-0.03%
, while T-Mobile has invested nearly $6 billion on joint ventures to acquire fiber broadband providers Metronet and Lumos.
T-Mobile expects to deploy fiber to 12 million to 15 million U.S. homes by 2030. Combined, Verizon and Frontier will reach 25 million addresses through fiber, with 9.6 million of them subscribing to the service. That deal could take 18 months to close.
Meanwhile, AT&T already has 8.8 million AT&T Fiber customers, with 28 million total consumer and business fiber locations. It’s on track to pass more than 30 million consumer and business locations with fiber by the end of 2025, the company says, with the potential to add roughly 10 million to 15 million additional locations from there.
AT&T’s current lead means more of its costly fiber outlays are in the past, while T-Mobile and Verizon are still ramping up.
T-Mobile said at its capital markets day in September that it plans to return up to $50 billion to shareholders through 2027 through share buybacks and dividends. Analysts, however, noted that T-Mobile could be hedging its bets in terms of keeping cash available for fiber.
“[T-Mobile] management is setting aside ~$20 billion, potentially for more M&A, which the Street was likely hoping would go toward accelerating buybacks,” Oppenheimer analyst Timothy Horan wrote in a research note following the announcement.
There’s no shortage of targets for T-Mobile with Lumen Technologies
LUMN
-3.09%
, Windstream, and Google Fiber among the remaining independent owners of U.S. fiber networks. But even those deals would leave it as a smaller rival to AT&T’s expected fiber network.
Investors have paid up for T-Mobile’s faster-growing, less capital intensive profile. Today, the stock fetches a price/earnings multiple of 23 versus under 10 for both AT&T and Verizon.
As T-Mobile turns to fiber, though, it begins to look more like its larger rivals—and the PE multiples could converge. Meanwhile, T-Mobile’s 1.7% dividend trails AT&T’s 5.2%, and Verizon’s 6.3%.
Given AT&T’s existing lead in fiber infrastructure, it could have the smoother path ahead.
Write to Adam Clark at adam.clark@barrons.com |
