T-Mobile reported postpaid phone net customer additions of 934,000 in the fourth quarter of 2023 – more than any other wireless carrier and higher than most analysts’ expectations for 874,000.
It was another stellar quarter for T-Mobile. Postpaid service revenues topped $12 million, and net income was $2 billion in Q4 2023.
CEO Mike Sievert hinted at more to come. “What’s really exciting is that while we’ve delivered fantastic results, we’ve also got room to run,” Sievert said in a statement. “We’re entering a phase of enormous value creation with a plan to deliver sustained customer and financial growth leadership. This is just the beginning of the next chapter for the un-carrier.”
Even with shifts in new smartphone releases like Apple’s iPhone in the fall, the holiday shopping season typically boosts sales – and competition – for the biggest wireless carriers.
AT&T reported 526,000 postpaid phone net adds in the fourth quarter. Verizon added 318,000 postpaid phone customers to its consumer division in Q4 2023.
FWA additions
T-Mobile’s success in fixed wireless access (FWA) continues. It added 541,000 high-speed internet customers in Q4 2023, for a total of 2.1 million in 2023. T-Mobile ended the year with 4.8 million high-speed internet, aka FWA, customers.
The company recently increased the price of the offering by $10. Going forward, management said they expect the growth to be closer to 400,000 subs per quarter than the previous 500,000.
More awareness is one of the factors driving continued growth. Churn is another factor, said Mike Katz, president of Marketing, Strategy and Products. “We knew that churn would come down” as the customer base ages, but also as the user experience and T-Mobile’s execution improves.
It’s well on its way to the 7 million to 8 million range, which is T-Mobile’s stated target for its total FWA base by the end of 2025.
Postpaid vs. prepaid
With all of the Big 3 carriers having reported their Q4 results, a lot of people are asking: Where are all the subscribers coming from? It’s an old and familiar question, noted analysts at MoffettNathanson.
“The very question implies that growth in Q4 was surprisingly strong. But was it?,” wrote MoffettNathanson’s Craig Moffett in a report for investors. “The answer partly depends on the lens. Yes, postpaid phone totals in Q4 were quite strong, led by T-Mobile’s 934K postpaid phone net additions… But as strong as postpaid results have been, prepaid results have been weak.”
In prepaid, T-Mobile reported 53,000 net customer additions in Q4 2023 and 282,000 total prepaid net adds for 2023. However, the total migration from prepaid to postpaid phones at T-Mobile was lower for 2023 than it was in 2022.
T-Mobile backtracks on price migrations during Q3 earnings
Still, conversions are happening at an industry level, which could be a function of anything from a surprisingly strong economy or lower credit standards as more prepaid customers move to the postpaid segment, Moffett suggested.
Whatever the cause, “on an as-reported basis, total phone (including prepaid as well as postpaid) subscriber growth for the Big Three has slowed from 2.1% in the fourth quarter of 2022 to 1.3% in Q4 2023,” Moffett said, signaling concern in an industry that has prided itself on growth, albeit increasingly smaller.
If market growth continues to decelerate, or if cable companies get more aggressive – as Comcast and Cox have promised – the shortfall could be quite a bit larger, Moffett said.
What others say
Although postpaid phone net adds dipped from 2022 levels, T-Mobile in Q4 2023 still came out on top of its rivals, said Third Bridge analyst Jamie Lumley.
Asked how T-Mobile – and for that matter, AT&T and Verizon – can add so many postpaid phones each quarter given the high smartphone penetration in the U.S., Lumley said part of that is due to the carriers successfully shifting prepaid customers to postpaid plans as consumers opt for longer-term plans with (usually) more data.
“However, this can’t go on forever and our experts expect that competition will increasingly become a matter of trading customers between the major carriers,” Lumley said. “This makes the market all that much more challenging for a newer entrant like Dish that needs to entice customers in a period that also is seeing historically low churn numbers.”
Asked about the postpaid phone growth during T-Mobile’s Q3 quarterly conference call, Sievert pointed to enterprises carrying two lines, sometimes on the same phone, as well as postpaid growing at the expense of prepaid.
T-Mobile’s postpaid phone churn was 0.96% in Q4 2023 and 0.87% in all of 2023. Prepaid churn was 2.86% in Q4 2023. For the full year, prepaid churn of 2.76% was the lowest in company’s history.
Extras
- When T-Mobile announced plans last year to acquire Mint Mobile – the T-Mobile MVNO made famous by part-owner Ryan Reynolds – the transaction was expected to close by the end of 2023. CFO Peter Osvaldik said Thursday that T-Mobile now anticipates the Mint Mobile acquisition will close in the first quarter of 2024.
- T-Mobile recently celebrated a pivotal moment in the alliance with SpaceX, kicking off the testing phase of direct satellite to cellular communications. The service will start with text messaging and expand from there. If all goes well with the beta, they expect to offer the service to customers this year, Sievert said.
- Asked about pricing, which is rising at all three carriers, Sievert said that across the category, not just at T-Mobile, customers are getting three times more data that just five years ago, and they’re seeing greater speeds. T-Mobile will not sacrifice its brand position as the “value leader,” but he indicated it will “find those opportunities” to increase rates where it works to their advantage.
- T-Mobile shares were trading around $160 today. Analysts at New Street Research (NSR) said they think the stock is worth at least $200. “Given the pace of growth, we look out two years, apply a peer multiple of 10x, and discount the value back to the present. This gets us to a target price of $205. We think 10x is a conservative target multiple” given the pace of free cash flow growth, even two years out, NSR said.
Fierce Telecom Group Editor-in-Chief Linda Hardesty contributed to this report..