Wells Fargo: Consumer credit policies 'caused a bit of disruption' for T-Mobile

Bad debt from consumer credit standards that had to be strengthened is taking a toll on T-Mobile's bottom line, according to Wells Fargo Securities. But newly implemented policies appear to be addressing the problem.

The firm said in a research note that it visited T-Mobile's headquarters in Bellevue, Wash., this week and "walked away from the day more positively inclined to the story and the overall strategy." But it said the company conceded that credit-policy problems remain.

"Management acknowledge the increase in bad debt expense in 2H15 is something to watch and 'caused a bit of disruption,'" Senior Analyst Jennifer Fritzsche and colleagues said. "They acknowledged they needed to tighten the credit standards with family plan customers especially around this year's tax season.

"They noted, however, since this change was implemented, it has not seen a decline in subscriber momentum," Wells Fargo continued. "Management also noted that if a customer is classified as subprime, a greater deposit is required to be put forth at the point of sale."

The analysts said T-Mobile "seems to have had a solid start to 2016 in terms of subs," though, and is confident that it can meet the 900,000 postpaid net adds Wall Street expects to see during the first quarter. It is also enjoying strong prepaid growth, echoing comments CFO Braxton Carter made earlier this week.

Finally, Wells Fargo indicated T-Mobile may have some spectrum cards up its sleeve as it begins to transition to 5G.

"Interestingly we learned that TMUS has 200 MHz of 28 GHz and 39 GHz spectrum in its portfolio. This high band spectrum is especially topical these days given that the 5G conversation centers around high band spectrum," the analysts wrote. "That said, we struggle with near-term catalysts for the story. In our view, it needs to get through the spectrum auction in order for investors to fully embrace the free cash flow part of the story."

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