It’s been a little while since we looked at the residential telecom industry, so we were curious and looked at what Placer could reveal about recent activity and market share trends ahead of Q3 earnings. We've put together a few exhibits to frame our analysis (below).
Some key takeaways:
- We expect Comcast to report better video and broadband subscriber trends than Charter for the Q3 2024 reporting period. In fact, it looks like Comcast may report better results in Q3 than Q1. As a reminder, the reason consumers visit Comcast and Charter’s retail stores is to add/discontinue service, pay a late bill, or upgrade their service. We understand “discontinue” to be the largest of these. Charter’s visits accelerated, which implies worse than -350K video subscribers and tough broadband numbers.
- Based upon the declines of the Charter/Comcast cross-shops with the "Big 3" carrier stores (AT&T, Verizon, and T-Mobile), our data suggests these were of wireless subscribers (which likely came at the expense of the Big 3 on a net basis) and at a similar rate as Q3 2023 (+888K).
- We expect wireless gross adds to be higher in Q3 2024 versus Q1 2024. That has been the trend over this past year. We suspect that the iPhone 16 was too late to be at play this quarter given the September 20 release date. The data suggests that Verizon lost share of gross adds.
- Because of the increased activity of T-Mobile customers going to an Apple store, the data suggests it gained the most share of gross adds that included a new iPhone, which is effectively the most share of gross adds.
- Given that T-Mobile had 200 basis points of more activity from Verizon shopper and Verizon -60 basis points less to the T-Mobile shopper, the data suggests that T-Mobile took share from Verizon (this is called flow-of-share or the porting-ratio in wireless “speak”). By contrast, it appears that T-Mobile fared less well against AT&T. The dynamics between AT&T and Verizon appear roughly even, reflecting a similar market positioning. That said, AT&T has been defending itself against T-Mobile by offering very favorable terms of phone trade-ins and extended service contracts (effectivity a lock-in), especially for higher average revenue per unit (ARPU), lower churn segment of the market.
- Prior to the T-Mobile and Sprint merger, the two were primarily focused on top 100 urban markets; that's no longer the case, as the combined company have expanded their network and retail locations into a vast amount of rural and suburban markets. We've plotted the trade areas for each brand using Placer Map Studio in these markets (below), and it shows a lot of purple (T-Mobile) and less red (AT&T) and green (Verizon).
To affirm these opinions and this preview, we reviewed the management commentary that took place at investor conferences during Q3:
- Comcast President Mike Cavanagh in early September said, “On the fixed wireless point...it's a near-term issue...We think of it as fixed wireless is a new overbuilder for a segment of the market. And that segment...tends to be a lower-end product. And rather than worry about repricing the whole book of business, we're trying to be deliberate and not chase the whole business down to a level that's really solving a problem that is at the more value-conscious end of the market. So what we've done is we've punched up in Essentials. We've been in that space for a long, long time with Internet Essentials, and we've added now products, our sort of value and offerings that go specifically at those segments. And we're seeing just really in recent quarter to start to roll that out in broadband and mobile and in video. And that will, I think, the appropriate type of response. But we fully expect for fixed wireless to take a share of the market." Those statements suggest cord-cutting for both video and broadband remains an issue, but less of a headwind than earlier in the year.
- Verizon CEO Hans Vestberg said, “We have gone from I think it was 12 months that people changed their phone every year. Then it came to 24, then 36. Now we're over 40 months. So people keep the phone because the quality is higher and it works really good.” The implication here is that iPhone didn’t create a big switcher pool in Q3, meaning that the quarter was more status quo.
- Vestberg continued, “You can bet on that we're going to be financially disciplined in this process as well as we have been on...The 3 KPIs that all the management are measured on: Number one is the wireless service revenue growth, number two is expansion on cash flow and EBITDA. That's the 3 KPIs we are measured on and that's the board and the market has told us, that's what you're going to focus on. That's why we're going to do this in the right way, taking out cost, gradually improve rather than do something that we don't think is long-term sustainable financially.” What was not said here was share of net adds, or any mention of subscribers. They aren’t primarily focused and compensated on those metrics.
- AT&T CEO John Stankey said, “I don't see a substantial change from what we've been seeing in the first part of the year. I think it's been pretty consistent. I've made comments previously that not all net adds are created equal, and there are some that are higher value than others. And we've been very deliberate at AT&T making sure we stay in the high-value net add space and I want to continue to do that. And I kind of measure our success by looking at our share of service revenues...We’ve done a really nice job in consumer intercepting the switcher channels more effectively than we've historically done.” That focus on “higher value” is what we highlight above and his comments point to slightly lower gross adds year-over-year and improved churn which is what Placer data also suggests.
- T-Mobile CFO Peter Osvaldik said, “We're very excited that we now anticipate service revenue growth to accelerate. And that's fundamentally driven by a few things, beginning with what you've heard today around ongoing profitable share taking, whether that's across smaller markets and rural areas and now proven strategy with consistent win share leadership and tremendous room to run, whether that's in top 100 markets, both from network seekers, in markets where we might already be #1, but also all the way down the compendium to markets where we're #3.“ And CEO Mike Sievert, “We're the market share gainer [of net adds]. We're winning switchers. Q2 was the best Q2 we've ever had in postpaid phone net additions…. I can tell you that our strategy has been pretty consistent.” This is quite an affirmation of our points above.
