The Six Five team discusses T-Mobile Earnings and their four carrier aggregation announcement around 5G.
If you are interested in watching the full episode you can check it out here.
Disclaimer: The Six Five Webcast is for information and entertainment purposes only. Over the course of this webcast, we may talk about companies that are publicly traded and we may even reference that fact and their equity share price, but please do not take anything that we say as a recommendation about what you should do with your investment dollars. We are not investment advisors and we ask that you do not treat us as such.
Daniel Newman: T-Mobile had earnings but also made a pretty big four carrier aggregation announcement around 5G, Pat.
Patrick Moorhead: Yeah, so let’s start with earnings. I don’t know how the analysts get this so wrong, but they crushed earnings by 18% and they keep crushing it by double digits almost every quarter, but they narrowly missed on revenue, which has happened the past four quarters. But, when you crush it by 18% and deliver two bucks a share on some massive revenue of 19.2 billion, you’re doing something right? And what is T-Mobile doing? T-Mobile absolutely took the biggest risk I’ve seen any carrier take and actually succeed, and a lot of big carrier risks that have failed, just look AT&T and Verizon right now, with some of the media acquisitions of divestitures. But, T-Mobile CEO, Mike Seaver, really boiled it down to three things. A, customers are coming to us more, that means they’re taking share, they’re taking people. Once they get us, they’re staying with us and that’s code for churn, and they’re buying up our rate card voluntarily.
By the way, two things in that. First of all, it means that they’re buying more services once they get in. So, let’s say you have smartphone coverage, and then you give it to the entire family or you go with FWA and use it as your primary internet for your house. Now, the funny part he said was, voluntarily. I just love the competitive stuff that… Now, Mike didn’t specifically say this, but AT&T and Verizon are kind of known for… I mean, look at the Verizon price increase, that came on legacy accounts that weren’t ever allowed to change. It’s a perfect example of this. So, we do a lot of B2B stuff and I’m going to hone in on the B2B stuff. There’s a ton of B2C stuff, but it’s really glad to see T-Mobile for business come out 179,000 post paid phone net ads for the business, with less than 1% churn. That’s obscenely high on the post page and obscenely low on the churn. You have to love it.
And then, the company for being this B2C company that’s kind of like Google Cloud, really trying to lean into the business side, and they spent a ton of time on the call talking about this. They talked about they want a huge… The largest global asset management firm, not going to use the name, another leading global bank. Two big wins with the EPA and the IRS. Hopefully, they don’t do too well in the IRS, and they talked about first responders and the benefits that 5G in rural areas delivers, versus LTE out there. They talked about retail, as a vertical, and they have some really interesting Web 4.0 solutions out there, where they actually sign up as the general contractor, they pull in a bunch of partners to deliver these solutions.
They’ve talked about retail with a fixed 5G, not having to do a truck roll, they talked about healthcare, where they were talking about indoor and outdoor ubiquitous connectivity. They talk about education, large campuses getting 5G to the farthest room across campus, and they talk about federal use cases. Which by the way, this is when you know are starting to… When you have arrived as a credible provider, when you can sign up the Department of Defense as a customer. Think about this. Five years ago, Dan, before T-Mobile came out with, again, these just the facts, the best 5G network out there, they bought Sprint to get that mid-band, that they’d be cranking out business customers. It’s hard to do because anytime you’re trying to optimize… I mean, Apple has a hard time in business, compared to consumer.
Now, a lot of people bring iPhones in, but people using iPhones for hardcore business use, it’s been hard for them because of lack of customization, the devices explode when you drop them on the ground, and stuff like that. So, imagine having such a strong and enticing consumer brand, like T-Mobile, and trying to make it fit into B2B. One historical example, who did this great thing was Sun Microsystems, when every box was black, every box was boring, Scott McNeely came out with basically purple boxes that he dumbo-dropped in data centers all over the place. But, T-Mobile’s on a roll, 20% earnings, 18% earnings beat.
Daniel Newman: Well, Mike Seaver said to our friend, Brian Sozzi, and I was just kind of reading up some of his comments right now on Yahoo Finance. He said, “Why are they so successful?” He said, “Three reasons,” which I loved it because it was so basic. But, he said, “Customers are coming to us more, they’re staying with us more, and they’re buying up the rate card voluntarily,” which basically means T-Mobile’s become… Do you remember when it was kind of like you would be on T-mobile and people would be like, “Why are you on…” It was AT&T and Verizon were the brands, right? At least here in the US. And so, that was first and foremost.
It used to be a weird thing to be part of T-Mobile. It was a weird thing, it was almost like being on Boost Mobile. It was just like, who does that? T-Mobile is absolutely considered now a premium product. So, they did a great job from being the un-carrier to now being really genuinely seen as the carrier. Second of all, Pat, I will just tell you, I say this all the time, their global presence is awesome. So, the fact that… I never even think about, will my phone work? Did you have to think about that at all, when you were in Korea?
Patrick Moorhead: No. The roaming plans that I’m on just automatically get up and they’re not onerous like they used to be, 20 years ago. I think I ran a $3,000 phone bill up. I was in Germany once, and yeah, it was crazy.
Daniel Newman: Don’t even think about it. And then, so basically, you got those couple of factors, you’ve got strong 5G, you talked about the carrier aggregation, but the fact of the matter is that they’ve basically made 5G more pervasive. Now, you and I can have a bit of a debate on 5G and how much or how little 5G has been able to succeed in meeting the promise that it’s made to the market. You and I have talked to a lot of the big infrastructure companies, we talked to the carriers, but in terms of making 5G widely available and connected and having high throughput bandwidth conversations, at least in my experiences, other than this one street down my block, T-Mobile really has done a good job.
So, are there some things that they need to work on? Yes. Amazingly, Pat, the phone companies are still the freaking phone companies. I know they’re kind of tech companies, but the service, there’s always a little bit more to want for, but I think T-Mobile’s done a good job and I think you hit on a lot of the reasons. I think they’re doing a lot of the right things, and Pat, for whatever reason, they just can’t figure out how to predict their revenue.
Patrick Moorhead: Yeah. Hey, can I boomerang on the… I didn’t talk about carrier regulation.
Daniel Newman: Yeah, you did.
Patrick Moorhead: I actually didn’t.
Daniel Newman: No, I know, I’m absolutely humiliated. I’ve now repeated you and I’ve given you credit for saying something that you didn’t even talk about, on this one. This is the difference, by the way, everybody, and us podcasting late in the day, I’m about 10, 11 hours of calls into my day and Pat is 12 hours of jet lag into his day. I’m being sincere, like I’m hearing things or I’ve imagined it in my mind. So yes, let’s boomerang back. Talk a little bit about the four carrier aggregation.
Patrick Moorhead: There’s a lot of different ways you can get performance out of a network. You can choose a certain frequency, you can jam up the frequency. The highest level of 5G is closer to wifi and spectrum, than it is to actually standard cell frequencies. The other way is that you take essentially 2, 3, 4 signals at the same time and you aggregate that performance. It really is a cool magic trick. That was the biggest way that, in the last five years of 4G LTE, that they got performance out of it, right? If you remember, LTE, I think at its peak was I think one gigabit per second. Now, one of the challenges with aggregating channels on 5G, has been the lack of spectrum, because you can’t just kind of show up and willy-nilly, turn off spectrum for 4G, and then move it to 5G.
But, and this is a first in the US for T-Mobile, they are aggregating four channels on and driving up to three gigabits per second. Now, does that mean that you can go and do a speed test right next to this and get three gig? Well, maybe, right? Particularly, if you’re testing and nobody else is on it, but there is an element of shared capability on it. But again, best 5G network when they came out, and if you have four carrier aggregation and you’re pushing the performance of the mid-band and low bands, I’m wondering of the incremental value, other than interconnectivity, of the highest level, highest performance 5G. So, hats off, as AT&T is buying and selling media companies and getting into just a total mess, as Verizon is trying to revive media properties that were irrelevant, T-Mobile just keeps rolling out this network.