T-Mobile US Going Solo?

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T-Mobile US (TMUS) performed well in 1Q19. Service revenues were up 6 percent over a year ago, the total connected devices base grew 2 percent in the quarter to 81.3 million and the company reported positive net income and earnings per share.

Network capital expenditures (capex) were up significantly both on a sequential quarterly basis and from a year ago. TMUS invested $1.931 billion in its network in 1Q19. That figure is up 63 percent sequentially from the $1.184 billion spent in 4Q18 and is up 41 percent on year-to-year basis from the $1.366 billion invested in 1Q18. Capital efficiency jumped to 23 percent, indicating broad network expansion activities.

The eye-opener here is that TMUS’ 1Q19 capex is the highest quarterly capital spend level in its history and is atypically high for 1Q capex. More concerning is that TMUS’ 1Q19 spending accounts for 35 percent of its full-year 2019 capex guidance of $5.4-5.7 billion – one-third of the budget in just one quarter! At that level, TMUS is on a run-rate with network investments that AT&T and Verizon make each quarter, even though those companies invest $8-10 billion a year in their wireless networks By contrast, Sprint came in at half that level at just under $1 billion for the quarter, in line with its projected wireless capex of $4-5 billion for the year. Given its guidance, however, TMUS cannot sustain that capex level and quarterly spending likely will tail off throughout the year. 

So what gives? On balance, TMUS is well-positioned for the next phase of network expansion. The company claims that current investment activities are towards completing its nationwide coverage of 4G LTE with an aggregate of 41 MHz of 600 MHz and 700 MHz low-band spectrum, ostensibly as it readies its network for 5G. With blocks of mid-band AWS (1.7/2.1 GHz) and PCS (1900 MHz) it already owns, the Sprint merger offers another 150 MHz of 2.5 GHz mid-band spectrum that can only enhance the combined company’s coverage and rank it on par with AT&T and Verizon in terms of customer base, network span and capital expenditure capability. Note that TMUS also owns but has not yet committed to 5G its substantial spectrum in 28 GHz and 39 GHz millimeter wave (mmW) as have AT&T and Verizon.

Sprint, in its latest earnings call, raised a caution flag that if the merger with TMUS does not happen, it may be relegated to a regional player just focusing on select, profitable markets.

TMUS has not expressed similar misgivings thus far. In fact, the company is acting as though it may be willing to go it alone while maintaining a strong third-place national ranking with a customer base and network investment plan at half of the market leaders.

John Celentano is Inside Towers’ Contributing Analyst. He can be reached at [email protected]

By John Celentano, Contributing Analyst to Inside Towers

May 13, 2019

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