Monday, October 24, 2016

Strong T-Mobile US 3Q Results Aren't Even the Story

T-Mobile US reported what CEO John Legere calls “historic” results for its third quarter of 2016, adding two million total net adds, including 851,000 branded postpaid phone net adds as well as 684,000 branded prepaid net adds.

Long term, as well as T-Mobile US performs, it will not, in one major sense, actually matter for the broader dynamics of the U.S. mobile industry. That is likely to be true even if T-Mobile US continues to gain subscriber share.

But the quarterly performance was quite strong. T-Mobile US branded postpaid phone churn was 1.3 percent.

Service revenue of $7.1 billion service revenues was up 13.2 percent, year over year.

Total revenue was up $9.2 billion total revenues, up 17.8 percent, year over year. Net income was up 165 percent, year over year.

Forward guidance--what is expected to happen--is in many ways more important than the quarterly results. On that score, T-Mobile US now predicts it will gain more branded postpaid net adds than previously expected, and has increased its forecast to 3.7 to 3.9 million net postpaid adds, up from the prior estimate of 3.4 to 3.8 million.

But T-Mobile is not forecasting net income, though it raised its adjusted EBITDA target to $10.2 to $10.4 billion from $9.8 to $10.1 billion.

Those results are in keeping with strong results over the last few years. Predictably, Legere suggested AT&T was in danger of losing its focus in mobile, that T-Mobile US would be very active in the 600-MHz spectrum auctions (in large part because it will not face competition from Verizon and AT&T for much of the spectrum it wants to buy), and that T-Mobile US can achieve many of the same synergies AT&T seeks by its acquisitions, in other ways.

One might argue Legere easily can make those arguments, for reasons related to the expected changes in market structure for the mobile industry in coming years. The biggest coming change is that at least a couple of cable TV operators will enter the U.S. mobile market.

Since “owner’s economics” matter, it is expected by some of us that neither Sprint nor T-Mobile US will survive, long term, as independent entities. In that sense, neither Sprint nor T-Mobile US can afford, nor need to, spend time, capital and effort creating the multi-product new entities that Verizon and AT&T are working to build.

Both essentially will become the mobile arms of other triple-play providers, probably owned by cable TV operators.

Also, In a CNBC interview, Legere pointed out that coming 5G mobile networks will represent fixed broadband substitution. That suggests a growing view that fixed Internet access networks will face new competition, directly from mobile networks, on a relatively wide scale basis, for the first time, once 5G launches.

That is likely one reason why a couple of the largest U.S. cable operators (Comcast and Charter Communications) will want and need to own mobile assets of their own.

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