T-Mobile (TMUS -0.46%) and Frontier Communications (FTR) are two rocketships headed in opposite directions. The Un-carrier has headed steadily skyward, gaining customers each quarter and gaining on its rivals. Frontier, meanwhile, has instead sputtered, not been able to climb, and started a slow but steady descent that will almost certainly end badly.
Why is T-Mobile the better buy?
Sometimes you can make an argument that a struggling company offers value. Frontier is certainly struggling, as it has lost customers in every quarter since April 2016, when it closed its purchase of Verizon's wireline business in California, Texas, and Florida.
That deal, which looks dreadful now, seemed like a smart move at the time. It doubled the size of the company and produced over $1 billion in cost reductions. The problem is that the move was Frontier doubling down on cable and DSL-based internet connections right before cord-cutting would accelerate and consumers would show a decided preference for cable-based internet.
Frontier paid a dear price for an immediately declining set of assets it has no chance of turning around. Yes, its stock price is much lower than T-Mobile's, but it has almost no chance of recovering as the company is basically in a managed decline/death cycle.
T-Mobile, on the other hand, has essentially done no wrong since John Legere took over as CEO. The voluntarily departing boss created the Un-carrier movement and has successfully disrupted the wireless business. This has led the company to add at least five million subscribers for six straight years, growing its customer base from 53 million in 2013 to 86 million at the close of 2019.
"T-Mobile delivered another incredible fourth quarter with strong customer growth, despite a very competitive environment -- and we did it while lighting up the country's first nationwide 5G network and working to close our merger with Sprint," said Legere in the fourth-quarter earnings release. "7 million net customers have chosen to join the Un-carrier movement in 2019, and they are choosing T-Mobile because we treat them right, we eliminate their pain points, and we are changing the rules of this industry for customers everywhere."
That's Legere's typical in-your-face style, but he's speaking the truth. T-Mobile has posted stunning growth and it shows no signs of slowing down. Its merger with Sprint will likely be approved, but even if it isn't, the company has shown that it can keep adding customers no matter what its rivals do.
Buy more of a good thing
Sometimes it's possible to make a case that a downtrodden stock has a path to recovery. That's simply not true with Frontier. The company keeps getting smaller, and that will eventually affect its ability to pay its bills. It's nearly impossible to see a path out of that, and the best-case scenario remains that a rival will buy its assets, though it's equally hard to see that happening.
T-Mobile still faces intense competition, but it has built itself a strong market. The company has staked out a place as being the customer-friendly wireless carrier. That's unique marketing, and it's a spot the company can easily retain given who its competitors are.
This is a clear case where one company is a growth story while the other is a cautionary tale. T-Mobile makes sense for investors, while Frontier remains a stock to avoid at any price.