T-Mobile (TMUS) Last Update 11/4/22
Related: CMCSA T VZ DISH
% of Stock Price
Revenue
Gross Profits
Free Cash Flow
T-Mobile
$167.72
Yours
Trefis Price
N/A
$149
Market
 
Top Drivers for Period
Key Drivers
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TREFIS Analysis


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RECENT NEWS AND ANALYSIS

Potential upside & downside to trefis price

T-Mobile Company

VALUATION HIGHLIGHTS

  1. Postpaid Mobile Plans & Phones constitute 68% of the Trefis price estimate for T-Mobile's stock.
  2. Wholesale and Other constitutes 19% of the Trefis price estimate for T-Mobile's stock.
  3. Prepaid Mobile Plans & Phones constitute 13% of the Trefis price estimate for T-Mobile's stock.

WHAT HAS CHANGED?

Q3 2022 Results

Over Q3 2022, T-Mobile's service revenue rose 4% year-over-year to $15.4 billion, although earnings declined to $0.40 from $0.55 in the year-ago period, due to some one-time charges. That said, the company's all-important postpaid phone subscriber additions topped expectations, coming in at 854,000, driven by strong uptake of 5G plans. Postpaid phone average revenue per user also trended higher by about 2% to $48.9.

Merger With Sprint

T-Mobile closed its deal to merge with Sprint in April 2020. The deal is helping T-Mobile register healthy subscriber growth while also providing the company access to Sprint’s key radio frequency assets, which, combined with T-Mobile’s, will give it an industry-leading 5G spectrum. Following the deal, T-Mobile became the second-largest wireless carrier in the United States. The company had over 110 million subscribers as of the end of Q3 2022.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

Below are key drivers of T-Mobile's value that present opportunities for upside or downside to the current Trefis price estimate:

Significant improvement in network performance

Network quality and pricing remain the biggest differentiating factors in the wireless business. As T-Mobile's network performance has lagged behind its competitors, particularly outside of urban areas, it has competed by offering low-priced plans and attractive equipment offers. However, T-Mobile's network is improving, driven partly by its growing low-band spectrum interests (it was the biggest winner in the FCC's 600 Mhz auction in early 2017) and infrastructure spending. T-Mobile could leverage an improved network by:

  • Increasing Postpaid ARPU and Service EBITDA Margins: If T-Mobile's network improvements enable it to bolster its pricing power, increasing its Postpaid ARPU to about $58 by 2025, versus our current estimate of about $50 while improving Service EBITDA margins to about 60% versus our current estimate of about 57%, there could be a 10% upside to our current price estimate.
  • Improving Postpaid Subscriber Base: Alternatively, T-Mobile could also maintain its value pricing proposition while offering a strong network performance, leading to an influx of customers. Under this scenario, if the carrier is able to boost its postpaid subscriber base to about 48 million subscribers, up from our current 2025 estimate of 40 million subscribers, there could be a 20% upside to our price estimate.
  • For additional details, select a driver above or a division from the interactive Trefis split for T-Mobile at the top of the page.

    BUSINESS SUMMARY

    T-Mobile US is the third-largest wireless communications services provider in the United States, providing voice, messaging, and data to over 70 million customers in the postpaid, prepaid and wholesale markets. Germany's Deutsche Telekom AG maintains a majority ownership stake of about 66% in the company.

    T-Mobile acquired smaller rival Sprint in April 2020.

    SOURCES OF VALUE

    We estimate that the Postpaid Mobile Plans & Phones segment is more valuable than the Prepaid Mobile Plans & Phones segment due to:

    Larger postpaid customer base

    T-Mobile had close to 47 million branded postpaid phone subscribers in 2019 as compared to about 21 million prepaid subscribers. Moreover, the postpaid mobile market in the United States is significantly larger than the prepaid phone market, with postpaid plans accounting for roughly 4 out of 5 wireless phone connections in the country.

    Higher ARPU and lower churn

    Monthly ARPUs for T-Mobile's postpaid users are roughly 30% higher compared to ARPUs for its prepaid users, on account of higher data and voice usage. Moreover, postpaid users are more loyal, leading to lower churn rates. This translates to lower customer retention expenses and better margins.

    KEY TRENDS

    Un-Carrier branding and promotions help T-Mobile gain share

    In 2013, T-Mobile introduced its "Un-carrier" strategy, offering affordable wireless plans that came without the two-year contracts that were prevalent in the industry while giving customers freedom on how they chose to buy devices. Although the other three carriers have followed suit, abandoning the contract/subsidy model over the last year, T-Mobile should have an edge in winning over new customers owing to its clever branding, lower pricing, and value-added offers. T-Mobile captured practically all the industry's postpaid phone growth in 2015, adding a total of 3.5 million subscribers, helping its postpaid division improve its share of the wireless phone by 0.9% to 9.3%, per our estimates. The trend was similar in 2016 as well.

    Carriers have essentially become mobile data providers

    Mobile data usage has skyrocketed in the last few years due to the increasing proliferation of smartphones and related applications and services. According to Cisco, North American mobile traffic per user will reach over 8 GB per month by 2020, up from roughly 1.8 GB per month in 2015, translating into a CAGR of 37%. Voice usage, on the other hand, is trending lower. According to the CTIA, aggregate monthly voice use in the U.S. fell from 218 billion minutes in 2013 to about 205 billion minutes in 2014. Carriers have also been tailoring their plans based on the monthly amount of data offered while typically offering free unlimited voice and text.

    Saturating wireless market

    The U.S. wireless market is saturating, with the total number of wireless connections standing at over 355 million and the number of wireless phone subscribers also coming in ahead of the U.S. population of about 319 million. It's likely that growth in the number of wireless phone connections - which represents the most lucrative segment of the wireless market - will slow significantly going forward. Carriers are likely to focus on retaining existing customers and winning over porting customers while driving an incremental upside from areas such as connected devices and tablets, M2M connections, and wholesale services to drive growth in service revenues.

    Wireless carriers diversifying into content, advertising

    Given the limited scope for wireless phone subscriber growth in the long term, carriers have been focusing on building other businesses that can leverage their sizable user bases, such as wireless advertising and content distribution. In 2015, Verizon closed its acquisition of AOL in a move that significantly improved its programmatic advertising and mobile video capabilities. AT&T closed a deal to buy DirecTV, giving it access to a rich library of content and providing it opportunities to sell bundled services. While T-Mobile has focused its efforts on expanding its core wireless business thus far, it's possible that it could increase its interest in these emerging areas as its subscriber growth begins to slow.

    T-Mobile's expanding low-band spectrum holding

    T-Mobile largely utilizes mid-band spectrum such as Advanced Wireless Services (“AWS”) and Personal Communications Service (“PCS”), which typically have weaker propagation characteristics compared to lower band spectrum. This has at least partly been responsible for the carrier's weaker network coverage. However, the carrier is working to build up its portfolio of low band spectrum that can cover large distances and penetrate building walls. T-Mobile bought some 700MHz A-Block airwaves from Verizon in 2014, and the carrier says that this band now covers approximately 190 million people. T-Mobile was also a big winner of the 600MHz spectrum in the FCC's incentive auction (it picked up about 45% of the spectrum available at the auction), which concluded in early 2017. This could help it eventually strengthen its network performance, enter new markets, and improve pricing power.