T-Mobile in ‘early innings’ of rural distribution game

T-Mobile
T-Mobile seems to have a "build it and they will come" perspective for 5G in rural areas. (T-Mobile)

T-Mobile boasts about its ambitions to cover huge portions of the U.S. with 5G, including in rural areas – which it promised to do before merging with Sprint – but it’s still in the early innings when it comes to actually reaching those areas and bringing distribution there.

“This is a huge opportunity for us. It’s 40% of the entire marketplace, when you think about smaller markets and rural areas,” said Jon Freier, EVP of the consumer group at T-Mobile, during a Cowen investor event on Thursday. That’s just a bit more than 54 million households and about 140 million people across the country.

T-Mobile is currently in the low teens in terms of market share in these areas, and it has designs to get to 20% market share by 2025. 

“We have an opportunity to bring to smaller markets and rural areas something that they’ve never seen,” which is the best network and the best value, he added. Until now, consumers needed to choose between one or the other.

“No company has been able to do what we’re going to go and do,” he said. In addition to the types of customer service it offers, “you put that all together, and we think we have a winning combination here.”

T-Mobile will open up “a couple hundred” new brick and mortar stores throughout rural America, and hundreds more “throughout this five-year ambition,” he said.

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It’s also bringing its distribution into about 2,200 Walmart stores, including just under 1,000 stores in smaller markets and rural areas. “Walmart is the premiere shopping destination in smaller markets and rural areas. If you’re not there, then you’re missing out,” he said, suggesting T-Mobile will be in a lot of those stores toward the end of the year. “We’re in the very early innings and we’re pleased with where we are so far.”

Of course, T-Mobile isn’t going into these areas with distribution where it doesn’t have the network, and its network will be a differentiator, noted EVP and CFO Peter Osvaldik.

T-Mobile is already covering 295 million PoPs with its Extended Range 5G product, which uses the 600 MHz band, but it’s the Ultra Capacity, midband-driven “game-changing speeds” of 5G that differentiate it, he said. Many viewed T-Mobile’s merger with Sprint as driven largely by Sprint’s massive 2.5 GHz spectrum holdings.

The deployment target is 300 million PoPs with that by 2023, and “that’s a significant portion,” which includes many rural areas, he said.

Digital channel growth

The digital channel became more important during the pandemic, and while T-Mobile doesn’t divulge its channel mix, it sees digital as an area where it can pioneer new ways to reach customers.

The industry model has typically relied on an in-person consultant to be able to help people, and T-Mobile’s account experts are part of its “secret sauce,” Freier said. “That will always be very important to us,” but if there are ways to use digital avenues to help customers interact, it will pursue those.  

“I think there’s a lot of room for digital acceleration in this particular space and for us to be able to pioneer some new and innovative things over the next few years,” Freier said.

More spectrum?

Asked about interest in the upcoming 2.5 GHz and 3.45 GHz auctions, Osvaldik talked about T-Mobile’s behavior in recent auctions like C-band and CBRS, saying “you always see this team go at spectrum auctions very prudently and rationally, and that’s going to continue on.”

With respect to 3.45 GHz, T-Mobile is watching and interested in some of the Department of Defense (DoD) information that’s due to come out, including how interference gets handled. 

DT’s stake

Osvaldik was also asked about parent Deutsche Telekom’s interest in increasing its share in T-Mobile to more than 50%.

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DT currently owns 43.2% and Softbank owns 8.5%, but given the way the shares are divvied up, DT effectively controls more than 50% of the voting shares, according to Osvaldik.

“DT has always controlled this company,” he said, adding that the relationship has been successful and a big part of the “un-carrier” model.

He acknowledged that DT has mentioned how it can get over 50% ownership in T-Mobile US, and it has several options to do that.

“To us, it’s just a continuation of the very successful relationship that we have had with them,” he said. “There’s no real change that we see happening there from a relationship that’s been so successful.”