There will be convergence between fixed broadband and wireless in the United States, and T-Mobile US (NYSE:TMUS) could be a part of that but will have multiple options as that occurs, according to a senior executive at the carrier.
Peter Ewens, executive vice president of corporate strategy at T-Mobile, said that "I think for sure convergence is coming in the U.S., but it's going to come much more slowly than it came in Europe."
Speaking with T-Mobile CFO Braxton Carter and CTO Neville Ray at the Morgan Stanley European Technology, Media & Telecom Conference, Ewens noted that there are no national broadband providers with national footprints in the United States. He said that AT&T (NYSE: T) wants to sell bundles of wireless, phone, broadband and TV in certain parts of the country, "but in other parts of the geography they actually want to break the bundle, they don't want you to be a bundler at all." He said Verizon (NYSE: VZ) faces the same issue and pursues the same strategy.
Ewens said that so far U.S. consumers have bought wireless service as a core purchase. "It's the thing they care the most about. And so far it's a relatively independent purchase," he said. "Will that change over time? It will. And we'll have lots of optionality, as other people, whether it's cable or other people in the industry, look to include wireless as part of a bundle."
For now, Ewens said T-Mobile does not face pressure to partner with a cable player. "But for now, we have a very strong and growing franchise," he said. "We have a differentiated value proposition. And we have a way to gain share in a market that up 'til now, wireless is still very much an independent purchase for the vast, vast majority of consumers."
Ray noted that T-Mobile's LTE network now covers 302 million POPs, and its 700 MHz A Block spectrum for LTE has been deployed to 176 million POPs, creating an "almost indiscernible gap between us, AT&T and Verizon." Ray noted that T-Mobile currently has 30 smartphones that can support Band 12 700 MHz A Block spectrum.
Ray added that now that it has fully refarmed all of the AWC and PCS spectrum it acquired by merging with MetroPCS, it now has "the most dense network" in the U.S. market and the most mid-band spectrum on a per-customer basis.
"The compounding effect of both of those provides us a very capable and deep and well-performing LTE network," he said, noting that roughly 33 percent of all of the carrier's voice calls are now transmitted using Voice over LTE (VoLTE) technology. He also said T-Mobile is pushing hard to deploy LTE Advanced features and rich communications services.
"The response has been extremely strong from the customer base. Our churn is at the best levels we have seen in our history," Ray said. "Really, you look forward and you think about the churn levels that Verizon and AT&T have secured for some time, you see a journey and path for us to approach those as we move in 2016."
T-Mobile reported branded postpaid phone churn was 1.46 percent in the third quarter of 2015, down from 1.64 percent a year ago but up from 1.32 percent in the second quarter. (For comparison, Verizon said retail postpaid churn was 0.93 percent in the third quarter, down from 1.0 percent in the year-ago period but up slightly from 0.90 percent from the second quarter. And AT&T said postpaid churn was 1.16 percent in the third quarter, up from 0.99 percent in the year-ago period and 1.01 percent in the second quarter.)
T-Mobile has in place deals to secure 20 million more POPs of 700 MHz A Block spectrum. However, Carter said that if T-Mobile can secure more 700 MHz spectrum before the 600 MHz incentive auction kicks off in March 2016, it will not need to buy as much in the auction. Or, if it can't get those 700 MHz deals, that means it will push to buy more 600 MHz spectrum.
"We think the window for existing [700 MHz A Block] holders to monetize what they have is narrowing," Ewens said, noting that there are buildout requirements that kick in at the end of 2016. "If we don't transact, and we get what we need in the broadcast auction, then that opportunity will be missed." He said T-Mobile might be looking to secure more 700 MHz deals right up until the imposition of anti-collusion rules at the end of January that would prohibit such agreements until after the auction concludes.
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