What Lies Ahead For T-Mobile In 2018

T-Mobile (NASDAQ:TMUS), the third-largest U.S. wireless carrier, had a relatively eventful 2017. While the stock remained fairly steady, largely trading at levels of between $56 and $63 as the merger talks with Sprint fell through, T-Mobile continued to record solid user growth, leading the industry in terms of postpaid phone additions. Below, we take a look at some of the key factors to watch for T-Mobile over 2018.

We have a $66 price estimate for T-Mobile, which is slightly ahead of the current market price.

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Customer Growth Could Slow Down

We expect T-Mobile to continue to lead the industry in terms of postpaid subscriber additions, driven by its brand momentum and its potential to further improve coverage in suburban and rural areas leveraging its 600 Mhz spectrum. That said, growth could slow down, amid saturation in the wireless market, increasing competition from AT&T and Verizon’s unlimited plans and T-Mobile’s relatively lower promotional activity. The trend has been evident over 2017, with the carrier adding 1.93 million postpaid phone customers over the first nine months of 2017, down from 2.374 million in the year-ago period. Things could remain mixed on the prepaid front due to competition from Sprint, which has been focusing on improving its prepaid subscriber base. T-Mobile’s prepaid net adds stood at 706k over the first 9 months of 2017, versus 1.97 million in the year-ago period.

Will We See An Increasing Focus On Profitability?

Although T-Mobile has historically traded profitability in favor of growth, with its margins and profits coming in below its larger peers, the company could make progress in shoring up its margins over 2018. While T-Mobile’s monthly ARPU has faced some pressure, driven by adoption of its unlimited plans – which put a cap on revenue and limit the scope of overage fees – the company is getting more confident about its pricing power. In Q3 2017, it increased prices on its high-end unlimited plans from $75 for a single line to $80, bringing them roughly in line with Verizon. The company has also been more circumspect about its equipment related promotions, with its offers on latest devices such as the iPhone 8 and X being less compelling relative to previous years. Moreover, the company’s growing wireless user base could also help it to improve cost absorption and margins.

T-Mobile’s TV Foray

T-Mobile will launch its own pay TV service in 2018, as it looks to play a bigger role in the TV industry that has been undergoing a significant transformation over the last few years, due to a shift from traditional media towards mobile devices and digital streaming services. While the pay-TV market is very competitive, the move could help the company improve stickiness and reduce churn rates for its wireless products, via bundling. Although T-Mobile hasn’t provided too many specifics about the upcoming service and what its USP will be, its brand image of being a disruptor in the wireless market could give it more visibility with customers in the pay-TV space. T-Mobile will build the service based on technology from its acquisition of pay TV startup Layer3. It’s possible that T-Mobile’s TV product could offer many of Layer 3’s core features including its bandwidth-efficient streaming and voice controls. (related: Does T-Mobile Have A Shot At Success In The Pay TV Market?)

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