How Does T-Mobile Make Money?

by Trefis Team
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T-Mobile (NASDAQ:TMUS) offers wireless communication services through a variety of service plan options. It also offers a wide selection of wireless devices, including smartphones, tablets and other mobile communication devices, which are manufactured by various suppliers. Postpaid services make up about 65% of the total revenues in 2019. View our interactive dashboard analysis T-Mobile Revenues: How Does T-Mobile Make Money?

What Are T-Mobile’s Key Business Segments?

1. Postpaid Plans & Phones: Revenue is generated from postpaid subscribers who pay for wireless communication services utilizing phones, DIGITS or connected devices which includes tablets, wearables, and SyncUp DRIVE.

2. Prepaid Plans & Phones: Revenue is generated from prepaid subscribers who pay for wireless communication services in advance. The prepaid customers include customers of T-Mobile and Metro by T-Mobile.

3. Wholesale & Others: Revenue is generated through wholesale customers including Machine-to-Machine (“M2M”) and Mobile Virtual Network Operator (“MVNO”) customers that operate on T-Mobile’s network but are managed by wholesale partners.

What Are The Alternatives?

Wireless Carriers: Verizon Wireless, Sprint and AT&T, and regional carriers such as U.S. Cellular and C-Spire.

Mobile Virtual Network Operators (MVNOs): TracFone Wireless, Comcast, Charter Communications, Altice USA

Technology Companies: Microsoft, Google, Apple.

What Is The Basis of Competition?

Competitive factors within the wireless telecommunications industry include pricing, market saturation, service and product offerings, customer experience, network investment and quality, development and deployment of technologies, availability of additional spectrum licenses, and regulatory changes.

Revenue growth of about $4 billion over two years to be driven by about $3 billion from Postpaid services, $700 million from Prepaid services, and $240 million from Wholesale services

  • T-Mobile U.S has added $4 billion to its revenue over the last two years.
  • Increasing sales from both its Postpaid and Prepaid services are likely to add $3.7 billion in revenue over the next two years

(1) Revenue from Postpaid Services to increase 11% (about $3 billion) in the next two years, with its share of Total Revenue expected to remain about 65% by 2020

  • Overall, Postpaid Plans & Phones revenue increased from $24.1 billion in 2016 to $27.7 billion in 2018, driven by higher revenues from postpaid mobile plans and equipment.
  • We expect revenue to grow by 11% in the next two years, to about $30.7 billion in 2020, driven by growth in postpaid revenues.
  • Postpaid services contributed 65% of total revenue in 2018. This share is expected to remain at similar levels by 2020.

1.1) Postpaid Phone business has been the biggest driver of growth

  • The growth is being driven primarily by a larger base of postpaid users. (expected to stand at 39.5 million in 2020 versus 30.3 million in 2016)
  • Over the last few years, T-Mobile has been expanding its retail presence and improving coverage. The company has a sizable amount of low-band spectrum, particularly in the 600 MHz spectrum bands, which allows it to improve its presence in rural and suburban areas in a relatively capital-efficient manner.
  • T-Mobile also appears to be doing a better job of retaining customers. Over Q1-Q3 2019, T-Mobile’s branded postpaid phone churn stood at 0.85%, marking a decline of 17 basis points year-over-year. This is likely being driven by the company’s improving customer service as well as moves to bundle video services such as Netflix with family plans.
  • Going forward, we expect the launch of 5G to accelerate subscriber’s growth in the coming time.

(2) Revenue from Prepaid services to increase 5% (adding about $700 million) in the next two years, with its share of Total Revenue expected to be about 28% by 2020

(3) Revenue from Wholesale services to increase 8% (adding about $240 million) in the next two years, with its share of Total Revenue expected to be about 7% by 2020

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