We've been looking at the competition between the wireless carriers for almost two years now, which has lasted longer and been more brutal than expected. As a reminder, T-Mobile, Verizon, and AT&T have all been bringing home broadband into cable’s turf, especially “poorly” served suburban and rural markets. In response, cable operators are now bundling discounted wireless service with their home broadband at a rate far below the wireless incumbents’ rates. By “poorly”, we mean markets that only have a single provider and where service speeds and quality are poor. We happen to live in one of these markets and before switching to T-Mobile’s fixed wireless service for home broadband, our legacy provider’s service was download/upload speeds of 60/10 Mbps, service outages lasted six or more hours (and occurred at least once monthly), and it cost $68 per month. Our T-Mobile service costs $50 and we enjoy speeds of 225/32 Mbps. Six months in, we have had no service disruptions.
Below we describe the results of Comcast and Charter. Given these two companies’ large scale, public disclosures, and the resulting higher regulatory/press scrutiny, these two likely have better service levels than their smaller, less-resourced, private cable peers. Moreover, these smaller operators don’t have a wireless service to bundle in at a discount. As such, we’d expect the smaller regional cable providers to be faring far worse than Comcast and Charter in the competition with the telcos. And so what’s the latest update?
Broadband adds by the telecoms were 1.3M for Q3 2023 and 4.9M over the past year. For Comcast and Charter, the figures totaled 45K and 266K. In post-paid phone (post-paid phone is where the money is made), the telecoms again led. Readers will know, that in this war, it’s really T-Mobile against all and on that scorecard, T-Mobile’s figures are 39.5% of broadband adds and 36.9% of phone adds, which both accelerating in Q3 2023. Readers will also recall that in suburban and rural markets, AT&T and Verizon are the incumbent wireless brands and cable is the incumbent broadband service, and T-Mobile is the challenger to both. However, to effectively challenge you need to have a retail footprint.
Over the past year, T-Mobile has added 343 new locations, not including store-in-stores. 302 (almost 90%) of these are in smaller markets such as Grand Forks, North Dakota and Laurel, Montana (population 7,180). Laurel is near Billings. In Billings, each operator has two retail locations as is shown in the map below.
In Billings, T-Mobile has gained significant share of visits/visitors from AT&T and Verizon over the past six months (compared to the same period a year ago), which likely reflects gains in post-paid phones and household accounts as well. Charter (aka Spectrum) is the incumbent cable provider in Billings. For Charter’s retail location, Casual Visitors (less than 2 visits) are up +21% year-over-year for the April-September 2023 period. One may find such an increase surprising for such a mature and subscription-based business, until one considers that when households cut the cord, they need to return the cable box.
By comparison, AT&T only opened 166 new locations nationwide during the past year, offset by the closing of 196 locations. Only 64 of the 166 (38%) were in smaller markets. Verizon only opened 119 locations, offset by 160 closings. Only 60 of the 119 (50%) were in smaller markets. As such, the 302 smaller market retail expansions by T-Mobile compared to only 124 by its wireless competitors, or a ratio of nearly 2.5x. The more limited openings by AT&T and Verizon reflect two aspects of their business: (1) being the incumbent, and they are already in these markets with locations; and (2) financially, they have less ability to invest, and the current priority is to reduce expenses.
T-Mobile sizes their rural and suburban market opportunity as 50M households and 108M people (between 15-90 years of age); 95% of this age cohort have a mobile phone. Their subscriber market share in 2021 was only 13% (13M subs) and they are targeting 20% (20M) for 2025. Management said that they are on track, but they have only had the pedal-to-the-metal for just over six quarters. If T-Mobile continues to open 300 rural & suburban locations in 2024 and 2025, these locations produce the current smaller-market average of 20K visitors per year, and we assume a 25% subscriber conversion rate, those assumptions yield 1.5M new subs per year in Year 1 and 2. Year 3 and 4 would yield something less than that, but this should give some idea of how the layering works. Based on these numbers, we think that T-Mobile will far exceed the 20M target given the momentum, the spectrum deployment (300M peoples now covered with high capacity 5G), and the retail roll-out. And so, while T-Mobile’s wireless and broadband services comes over the air, their encroachment comes from retail expansion.
T-Mobile’s momentum in home broadband reflects consumers’ trust in the brand that T-Mobile with 5G helped solidify. CEO Mike Sievert said, “In the wireless space, you have this national competitive intensity where brand trust around this intangible of value and network is really, really important. And we have so carefully built that brand trust over so many years that we think it's somewhat transferable. People believe in this brand, being an advocate for them, putting them first, changing the rules in their favor. So it really comes down to their own lived experience and the covenant--sort of the contact and the connection they have with the brand that they use. And what we're finding in our work is that, that brand is highly transferable into adjacent spaces because of that trust. And so we're interested in the space. We're finding that our brand really resonates, but we're not interested in changing who we are from sort of a capital structure standpoint. And that's why we've talked about fiber the way we have...We generally talk about marketing to about 50 million homes right now.”
