T-Mobile Nearly Done Converting Sprint Customers, but Many Sites Remain

“One of the cornerstones of our merger advocacy was that we would lead the U.S. into the 5G era, and I don't think very many people anticipated what we've already achieved in just two years,” said CEO Mike Sievert on an earnings call: “We now cover 315 million people with 5G. That's 95% of all Americans.” T-Mobile’s low-band coverage is “more than Verizon and AT&T have combined” and they're both “still largely sharing spectrum with their LTE networks.”

T-Mobile has decommissioned about a third of 35,000 targeted Sprint sites “with the big push coming in the second half of this year,” Sievert said. T-Mobile will likely have an impairment charge of up to $500 million in Q2 with the shutdown of the Sprint CDMA and LTE networks, said Chief Financial Officer Peter Osvaldik. The costs are tied to wireline assets acquired from Sprint that “no longer support the wireless business, triggering an impairment analysis,” he said.

T-Mobile has forced its main competitors to embrace mid-band spectrum for 5G, Sievert said. The competition pivoted “from an apparent willingness to leave fast 5G to a select few customers within arm's reach of a millimeter-wave site,” he said.

Among other metrics, service revenue was $15.1 billion, up 7% year-over-year, and net income was $713 million. Headed into the 2.5 GHz auction, T-Mobile reported free cash flow of $1.6 billion. Postpaid phone churn was 0.93%, the provider said. T-Mobile also added 338,000 high-speed internet customers in Q1, bringing its total to just under one million. It added 62,000 net prepaid customers. The company said capital expenditures are likely to be close to $13.5 billion for the year.

Analysts were curious about where T-Mobile is picking up home internet adds, a new business for the carrier. “Demand just continues to build, from dissatisfied suburban cable customers to underserved customers in smaller markets and rural areas,” Sievert said. Executives said the carrier is picking up customers in small towns and top 100 markets.

Neville Ray, T-Mobile president-technology, said supply chain is under control as the 5G build continues. “We've been at this for some time now, whereas our competition is really just trying to get started, especially in AT&T's case,” he said: “We're very engaged with all of our suppliers across the U.S. and internationally. And right now, we're in good shape.”

“Obviously, we need to watch labor costs and variable costs, but the vast bulk of our cost structure is in long-term contracts around things like tower contracts, backhaul contracts, technology contracts, those kinds of things that are generally fixed,” Sievert said.

MoffettNathanson’s Craig Moffett said the big concern for T-Mobile has been sustaining subscriber growth. The numbers look good on the surface, but reality is more complicated, he said. “Like AT&T last week, T-Mobile excluded 3G disconnects from their totals (for both subscribers and accounts),” he said: “Include those lost subscribers and T-Mobile’s numbers, like AT&T’s last week, are significantly lower than they first appear. That probably doesn’t mean that T-Mobile’s (or AT&T’s) trajectory is any weaker, but it does impact one’s assessment of industry growth.”

“Management’s key message to the equity market seemed to be that T-Mobile is a growth company, with a well-thought-out growth plan based on what they view as their ‘right to win’ in specific, clearly identified markets,” New Street’s Jonathan Chaplin told investors: “The implication: the stock is being weighed down by the markets concerns about the sector they operate in; management feels this is unfair.”