Last year, we introduced the theme The Wireless Wars Are Coming to Your Home Office, which was about the convergence between legacy wireless companies (Verizon, AT&T, and T-Mobile) and legacy cable companies (Comcast, Charter, Cox, etc.) as they compete against each other for both wireless subscribers and home broadband subscribers (technology and partnerships had now allowed for an overlap between the two industries). Moreover, we shared at that time that this “war” would bring an increasing number of retail locations to suburban and rural markets for these brands, especially by T-Mobile as it was a small player in these markets before 5G.
These companies reported Q2 2023 results this week and the takeaways are: (1) the consumer is healthy and not trading down, or paying late; (2) the war continues to be fierce, with T-Mobile scoring the most wins and Verizon the most losses; (3) the wireless companies are winning the home office with 18X the number of net new broadband homes compared to the biggest two cable companies; and (4) the big suburban and rural expansion push hasn’t happened, besides by T-Mobile. That the other players are being more reserved in their expansion, in our view, reflects the pressures on them to preserve their margin rates and boost their cash generation to pay down large amounts of debt that were incurred for network spectrum (AT&T and Verizon) and the shareholder demands on the cable companies to return a lot of cash to shareholders via dividends and buybacks. Year-to-date, Comcast and Charter have returned $7.7B. In contrast, T-Mobile has expense synergies to draw from, resulting from the Sprint acquisition, to fund its large footprint expansion and recrafting, and a pricing umbrella to run beneath created by AT&T and Verizon’s higher price points and price increases.
Phone upgrading was below expectations for all three carriers (upgrading is highly beneficial to Apple) and equipment sales, which is essentially a passthrough to Apple and Android devices, was down year-over-year at a $5B rate. We will see what Apple has to report next week--for context, Apple store visit trends improved throughout the quarter (below). T-Mobile shared, “about two-thirds of our postpaid base already has a 5G device...Customers are happy with their devices. They're happy with their devices from a longer perspective.”
T-Mobile has a striking rate of retail expansion and subscriber growth. For context, one of T-Mobile’s strategies is to gain share in two large underpenetrated markets for them: (1) enterprise, and (2) rural/suburban households. Prior to the Sprint acquisition, T-Mobile had less than 10% share in these segments, as they had a higher weighted share than competitors in urban markets. Another foundational strategy was to bring highspeed wireless broadband to under or poorly served markets. On its most recent update call, CEO Mike Sievert said, “In smaller markets and rural areas, where we continue to bring the first and in many places, only 5G network, we're seeing an incredible response. We're capturing a win share of switchers in these areas in the upper 30s, which shows we're not only on track to meet our goal of 20% share in 2025, but it gives us confidence we have room to run in the years beyond. In addition to mobile wireless, we added 509,000 high-speed internet customers. Notably, we've continued to grow our gross adds every quarter since we launched over 2 years ago as demand for the product just continues to grow. And we saw a sequential improvement in churn again this quarter and Net Promoter Scores that remain multiples higher than cable, demonstrating how our high-speed internet resonates with and satisfies an important target audience within this larger broadband market.”
Verizon is winning in home broadband and losing in wireless. They added +251K consumer home broadband subscribers and +133K business subscribers in Q2 2023 for a +1.5M over the past year. Unfortunately for them, they also lost -58K consumer wireless accounts and -136K consumer phone subs. To stabilize its consumer wireless business, Verizon has changed leadership, again, and started to slice-and-dice the market into narrower segments. While there hasn’t been much improvement to the trend line as reported, management has expressed being satisfied with the deeper underlying trends.
Looking at their retail activity through our visitation data we see three things: (1) Verizon is adding few new locations (+33 year-to-date), likely in an effort to keep expenses and capital expenditures low; (2) nearly half of these locations are in major metros like Phoenix and not in rural and suburban markets (Verizon is the dominant incumbent along with AT&T in these markets); and (3) visit per location is down a lot, which matches its trend in consumer wireless subscriptions.
AT&T reported an on-plan set of wireless phone figures (+326K new subs), but we suspect that is from more business lines than consumer lines given the footfall decline at their retail locations (which is similar to Verizon). AT&T didn’t disclose their consumer wireless additions. In total, gross adds were down year-over-year, which was also the case for Q1. AT&T isn’t expanding its number of retail locations, but the portfolio’s locations are changing. Year-to-date, 79 locations, or 1.5% of the base, are new--a slightly larger rate than Verizon, but far below T-Mobile’s rate. Like Verizon, most of these new locations are in well-known markets like Phoenix and Miami. On home broadband, over the past year, fiber has passed 2.2M new homes and they added 1.2M broadband subscribers. CEO John Stankey said, “Cable is busy adding wireless customers at very low lifetime values just to protect customers they already have. We're not only keeping our current high-value customers happy, but also adding more of them.” On the consumer, Stankey said, “I think the consumer continues to show signs that they're pretty healthy right now. I don't see anything that gives me near-term concern about demand.
Comcast and Charter added a combined +57K broadband subscribers and +964K wireless subscribers for Q2. It's really the retail locations that push the wireless business for the two and what is an important driver of the strong visitation to their stores. As a reminder, the wireless plan and pricing from Comcast and Charter is focused at households that are seeking to save money vs. seeking the best network service. Comcast’s wireless average revenue per user (ARPU) is about $38 per line, substantially below Verizon’s $56 per line. Comcast (Xfinity) has been more active with its retail portfolio, having opened 15 new locations this year and 58 since the start of 2022. While Charter (Spectrum) hasn’t opened much for new locations this year, since the start of 2022, it has opened 57 locations. Given that refreshing of its real estate, the growth in average visits per location for both is impressive.
That said, there is another dynamic that may be behind the growth, which is customers coming to the stores to cancel video (i.e., “cutting the cord”). Over the past year, 1.8M households canceled their Comcast video service, a -14% decline year-over-year decline in households subscribing. For Charter, cord cutting has been less at -950K households. Per broadband and the “battle for the home office", the +57K pales in comparison to the wireless companies adding 1,047K households.