T-Mobile CFO touts low Magenta churn rate

T-Mobile store front
T-Mobile’s ability to expand its addressable market and gain future revenue is driven largely by its network capacity and expansion. (Getty Images)

For years, one of the criticisms that dogged T-Mobile’s network was the voice quality/coverage that users didn’t think was as good as its peers. There was a reason for that. Back then, T-Mobile didn’t have the network resources to meet or beat its rivals, and calls suffered.

During an Oppenheimer investor event Wednesday, T-Mobile US EVP and CFO Peter Osvaldik was asked to explain how that’s all changed.

When it comes to voice quality, “we’ve always been hyper focused on this,” as one of the first to offer HD Voice, and its satisfaction levels are tremendously high, he said. One of the proof points of network performance is churn. “Network performance is still a top driver of churn in this industry, as it should be.”

Of all the things consumers expect from a mobile service provider, voice is the least forgiving. “They don’t want their calls to drop,” he said. They want coverage, and it’s a primary driver of churn. Nowadays, “the Magenta churn is the best churn in the industry.”  

T-Mobile reported postpaid phone churn of 0.87% in the second quarter of 2021. That’s compared to a few years ago, when it was recording a quarterly branded postpaid phone churn of 1.18%. Churn basically refers to the rate at which a wireless service provider’s customers are jumping ship.  

Of course, on a blended basis with Sprint, T-Mobile’s churn rate is not so great because Sprint historically had some of the highest churn rates in the industry. But by itself, the Magenta base boasts the lowest churn in the industry, and that’s a great gauge of how consumers vote, he said, adding that it’s also winning high marks in third-party network quality assessments in both LTE and 5G.  

As for improving the network even further following the merger with Sprint, plans call for building about 10,000 new sites to improve coverage and reach the ultimate target of around 85,000 macro sites. Some sites are being decommissioned in the process.

Putting 2.5 GHz to work

Many surmise that the grand prize in T-Mobile’s merger with Sprint is the 2.5 GHz spectrum that Sprint brought to the table. While Sprint for many years bragged about that spectrum, it never was able to reach its full potential. Now with T-Mobile, the company is building it out at a frenzied pace for its 5G network.

Right now, it’s sitting on about 80 MHz on a nationwide average of 2.5 GHz on the anchor network, on its way to about 100 MHz by the end of this year and 200 MHz of mid-band deployed on the anchor network by the end of 2023. It’s doing that as it’s refarming spectrum as well, Osvaldik noted.

About 80% of the Sprint traffic base is now migrated over to the T-Mobile network. The goal is to have all the traffic moved by mid-2022 and finish the de-commissioning of sites by the end of 2022.  

T-Mobile’s “spectrum layer cake” strategy, made famous by T-Mobile President of Technology Neville Ray, remains at the center of its approach. T-Mobile’s 600 MHz spectrum laid the groundwork for the low-band coverage layer. It’s deploying high-band millimeter wave spectrum where it makes sense, such as in high-traffic venues, but the focus right now is on the mid-band layer.

Driven largely by the improvements in network capacity and expansion over the next couple years are new opportunities for T-Mobile to grow its service revenue. Those areas include home broadband, as well as enterprise and government sectors.

Smaller markets and rural areas, where it currently has a share in the low teens, is another area for growth, where its goal is reaching 20% market share. This area is a particularly exciting opportunity, he said, with the potential of addressing the digital divide and serving homes that previously were underserved.

Some of the 5G services that its rivals have been talking about – edge computing, AR/VR – “those are all areas where we’ve got great traction” just as the others do. “These things will develop and what better network to be on” than one that’s currently the only one with a standalone (SA) 5G core. “We know those things are coming, but we’re a prudent management team that puts out targets that we strive to achieve and beat.”

Here’s a smattering of other notable points from the event:

  • Sprint pushed the Magic Box a few years ago. Thoughts on that? “I think Sprint was pushing that as a way to supplement the network that they had, which made a lot of sense… We have a very different strategy.” Small cells will be a part of the mix, but the targets that T-Mobile has put out there in terms of coverage and capacity – “we’re not looking to solve this with a Magic Box type of approach. It’s really building an unprecedented network” that will bring ultra capacity 5G to the vast majority of Americans, or 300 million by the end of 2023.  
  • Regarding the Magenta Max plan, it came in response to a customer pain point. “It seems to be exactly” aligned with the un-carrier and provides a differentiated product. He declined to put a target on it in terms of how much they want to see it grow.
  • What about its wholesale strategy in light of the Dish/AT&T agreement? “We have a tremendous set of partners” in the wholesale space and they’re pleased with how that’s going. “Very happy with the partnerships we have,” he said.