T-Mobile (NYSE:TMUS) is relatively well positioned in the battle for network capacity, according to a recent investor note from analysts at Macquarie Capital. Citing a recent meeting with T-Mobile CTO Neville Ray, the firm wrote that "T-Mo has several years of additional capacity on existing spectrum and current growth rates." The firm also raised its expectations for T-Mobile's fourth quarter performance from 939,000 postpaid net adds to fully 1.2 million postpaid net adds.
The relatively rosy outlook is noteworthy considering Wall Street's recent withdrawal from the wireless carrier space. According to the Wall Street Journal, Verizon Wireless (NYSE: VZ), AT&T Mobility (NYSE: T), Sprint (NYSE: S) and T-Mobile have collectively lost $45 billion in market value since mid-November due to declines in their stock prices.
However, analysts, including those at Macquarie, believe that T-Mobile remains relatively well positioned in the wireless industry, and that its current stock prices do not reflect the real value of the carrier's business. Part of that value, the analysts at Macquarie wrote, is related to T-Mobile's network position.
"Ray said that TMUS has more than 50% of its spectrum currently deployed on 3G technologies," Macquarie analysts Kevin Smithen and Will Clayton wrote in a note to investors. "We believe that in just six qtrs., T-Mo has moved over 50% of its subs to LTE. We expect the company to begin to refarm its 3G spectrum in 2015 and believe this process will take 18-24 months to complete."
The analysts also pointed to T-Mobile growing 700 MHz buildout. "In our opinion, the 700MHz deployment in 2015 and 2016 will expand T-Mo's addressable market by ~50% into suburban areas long dominated by VZ and T family plans. Overall, TMo will have over 260m LTE covered pops at the end of 2014, on its way to 300m."
Indeed, T-Mobile already owns 700 MHz licenses covering 185 million POPs in 24 of the top 30 U.S. markets, according to CFO Braxton Carter--and the carrier plans to buy more 700 MHz spectrum where possible.
Overall, T-Mobile now covers 260 million POPs with LTE, beating its year-end coverage goal by two weeks. The company is planning to expand that to 280 million POPs by mid-2015 and 300 million by the end of 2015. Verizon Wireless (NYSE: VZ) and AT&T have already hit that 300 million milestone.
And T-Mobile is likely working to increase its spectrum holdings with the purchase of AWS-3 spectrum. The FCC is currently auctioning AWS-3 spectrum, and many believe T-Mobile will spend around $1 billion to purchase some of those licenses. The identity of the auction's bidders will be published after the auction is over.
Interestingly, the analysts at Macquarie aren't the only ones who see potential in T-Mobile's position. "T-Mobile is an undervalued and underappreciated growth story on the cusp of significant free cash flow for the first time," analysts at MoffettNathanson said in a recent report on T-Mobile.
As for the carrier's network, the analysts at MoffettNathanson wrote that T-Mobile's network capacity position "is much better than it initially appears." They said that, after deducting the MetroPCS sites that will eventually be shut down, T-Mobile has about 60,000 cell sites--more than any other carrier today. (The analysts said that Verizon counts around 45,000 cell sites, AT&T about 55,000, and Sprint with Clearwire about 55,000.
"Loaded on this (T-Mobile's) network are the fewest subscribers of any of the majors," the analysts at MoffettNathanson wrote. "Taking the product of spectrum in the number of cell sites divided by the number of post-paid equivalent subscribers yields a broad measure of capacity per subscriber. T-Mobile actually comes out well ahead of both Verizon and AT&T along with Sprint if its nascent 2.5 GHz assets are excluded."
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