T-Mobile has been a darling of Wall Street investment analysts for a while now, and in its latest report, MoffettNathanson gives the “un-carrier” top marks in the category of wireless pricing.
That’s not surprising, since T-Mobile has been offering lower prices compared with AT&T and Verizon for years. Its two biggest rivals enjoyed the advantage of having ties to legacy cellular networks, which gave them the coverage advantage, so they could charge more for better, more reliable service.
But T-Mobile changed that up in 5G, and the big question remains: When will consumers’ perceptions catch up to the network improvements? Not to mention consumers’ desire for new devices and switching it up on the service side of things.
“Our analysis underscores T-Mobile’s price advantage,” wrote analyst Craig Moffett. “Notably, only T-Mobile can claim that its customers are better off to stay with T-Mobile than to switch to anyone else, even allowing for the high bounties and handset giveaways that are lavished on customers who are willing to switch. Our analysis also makes clear that AT&T’s aggressive retention offers have helped narrow the usual switcher gap that would otherwise make leaving more attractive than staying for most carrier-pairs.”
Moffett and his colleagues are not suggesting that consumers do the kind of detailed (75-page) analysis that they’ve done in order to make their carrier choices. “We do believe, however, that different elements of the carriers’ offers will appeal to different segments. Some will be attracted by free streaming media offers. Others by aggressive headline rates. And almost everyone will consider handset promotions, even if they don’t undertake a serious analysis of total cost over time,” the report said.
Like a lot of folks, the analysts remain highly skeptical about the prospects for 5G revenue streams like private networks and mobile edge compute (MEC). But there’s one sure-fire way to make money off 5G, and that is to take market share “by having the best network,” they wrote. “That strategy is all the more compelling when one has not only the best network but also the lowest prices. Even without buying into the more speculative fantasies about 5G services, we still believe the best network – fastest, with the best coverage – when coupled with competitive, or better still, lower prices, will win. And we still believe that will be T-Mobile.”
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MoffettNathanson rates AT&T shares at neutral, with a price target of $28. Its rating for Verizon is also neutral, with a price target of $55, and for T-Mobile, the firm gives it a “buy” rating with a target price of $167, down from an earlier target of $178. Its rating for Dish Network continues to be neutral with a price target of $28, down from the previous $40.
The report noted that it was just a decade ago that the industry competed on network quality, handset selection and price. “AT&T’s iPhone exclusivity gave them a huge advantage on the dimension of handset selection,” Moffett wrote. “Verizon countered with an arguably inferior lineup of mostly Motorola phones, but, even then, they justifiably claimed to have the best network (in those early days of mobile data, network advantage was still mostly about coverage for voice service and Verizon’s CDMA network was demonstrably better on that dimension.)”
T-Mobile and Sprint, both of which had inferior networks and offered even weaker lineups of devices, were left to compete on price, the report said, noting that for Sprint, it was mostly Nokia, HTE and the Palm Pre, “and for T-Mobile it was dog’s breakfast of Nokia and the earliest Google devices.” (Remember the dog food, anyone?)
Verizon’s and AT&T’s prices are broadly comparable for entry unlimited plans, but Verizon’s are slightly higher across premium unlimited plans, the report said. They’re both priced at a premium to T-Mobile’s plans across premium and entry unlimited, especially for 3+ lines where T-Mobile has a long-standing third line free offer.
However, the report called out a clear change this year in that cable wireless unlimited offers, which were uniformly priced at $45 per line at the beginning of the year, have become competitive with, and even undercut, the incumbent offers at the low end. “Today, Comcast and Charter’s wireless offerings are – at the headline price level – cheaper than Verizon and AT&T for all plan sizes except for 5+ lines … and we still await Altice’s revamped mobile strategy, which presumably will have some resemblance to Comcast and Charter’s strategy.”
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During a UBS conference earlier this week, T-Mobile CEO Mike Sievert said about 30% of T-Mobile’s customers have 5G handsets, and customers on its Magenta MAX plan, which it’s been heavily pitching, are using 35 gigs a month and doing eight times more gaming than people on LTE. He said the first killer app for 5G is the “smartphone that you already know,” and when people are given the capacity they get with T-Mobile’s 5G, they use a lot more of it.