T-Mobile's Growth Plans and Competition in the US Telecom Market
2023-06-20
On June 20, 2023, T-Mobile US, Inc. (NASDAQ:TMUS) held its BofA Securities C-Suite TMT Conference Call, where Peter Osvaldik, the Executive Vice President and Chief Financial Officer of the company, discussed the state of the US wireless business. David Barden from Bank of America Securities moderated the call.
During the call, T-Mobile's management emphasized the robust and healthy state of the industry, despite rising rates and unemployment fears. The company reported significant growth in postpaid phone net adds, with a healthy projection of roughly 2.5 million postpaid phone net adds for 2023. The management highlighted the critical role of connectivity to consumers, which has become increasingly important, even during recessionary and pandemic environments. The industry is seeing significant benefits in bad debts.
The key driver of T-Mobile's business is free cash flow generation, which allows for potential shareholder return strategy and is what enables the company's success. The company aims to be a service revenue growth leader, but converting that into free cash flow is equally important. The current capital return strategy is share buybacks, but the company is open to other alternatives, such as dividends, depending on what the Board approves in the future.
T-Mobile's plans for product/service expansion include fixed wireless, other connectivity services, and underpenetrated market segments such as smaller markets from rural areas, top 100 markets, and enterprise and government spaces. The company aims to maintain its value leadership while providing the best product at the best price, increase its market share in the underpenetrated market segments, and continue to win contracts in enterprise and government spaces. Fixed wireless is seen as an amazing opportunity for the company.
The competitive landscape in the US telecom market is evolving, with carriers focusing on network quality and pricing strategies to win customers. Recent changes in pricing by Verizon and T-Mobile are seen as a sign of increased competition. The discussion also touched on the possibility of Amazon entering the US wireless market, which was denied by all carriers. The importance of network quality and 5G leadership in attracting customers and increasing market share was emphasized.
T-Mobile's capital spending plans include a capital expenditure (CapEx) of around $9 billion to $10 billion, which is considered the most capital-efficient in the industry. The company has seen the CapEx drift down from the $13 billion range to the $9 billion to $10 billion range. The company is also looking at continued synergy unlock on their way to about $8 billion in 2024.
In conclusion, T-Mobile US, Inc. is optimistic about the state of the US wireless business and its position within the industry. The company's focus on free cash flow generation, product/service expansion, and capital-efficient spending is expected to drive its success in the coming years.