In this episode of Industry Focus: Consumer Goods, Emily Flippen is joined by Motley Fool contributor Dan Kline to discuss the telecom space in general and T-Mobile (NASDAQ:TMUS) in particular. Discover how T-Mobile differentiates itself from its competition, its recent merger with Sprint, its leadership team, and how it was able to grow its number of customers year after year. Our hosts also talk about how the telecom industry is evolving, the challenges of operating in this space, and much more.
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This video was recorded on August 11, 2020.
Emily Flippen: Welcome to Industry Focus. It's Tuesday, August 11, and I'm your host Emily Flippen. Today, I am joined by Dan Kline, and we're going to be discussing T-Mobile (NASDAQ:TMUS) and U.S. telecoms in general. Dan, how are you?
Dan Kline: I am good, very excited to be doing this. It amazes me, actually, that we've never done this, because this is a company I think about a lot. I actually went to one of their earnings call presentations once, and it was hosted by the Weekend Update guys. That's how much of a show this company puts on, they literally had Michael Che and Colin Jost telling jokes for, like, 20 minutes before their presentation.
Flippen: [laughs] So part of the reason why we're going to have this discussion today is because we saw a lot of reports come out last week that T-Mobile, now combined with Sprint, of course, have overtaken AT&T (NYSE:T) to become the second-largest carrier here in the U.S. It's a report that, I think, maybe has been some time coming, but it also got a decent amount of pushback from fans of AT&T, saying it didn't tell the whole story. So maybe lay the groundwork for why we're going to be discussing T-Mobile today.
Kline: So the T-Mobile-Sprint deal closing is, obviously, a big deal, but we knew that was coming, that's been in the works for a while, there were a lot of questions as to whether it would get approved. But let me say something: That T-Mobile buying Sprint, added, whatever it was, 40 million customers. And that accelerated, obviously, their taking over the No. 2 position from AT&T, and that's semantic. The reality is, you count customers all sorts of different ways; they're pretty close right now. But T-Mobile's been adding a million customers a quarter for, like, six years, [laughs] maybe even longer than that.
So this is one of those things where, yeah, they bought something and they appear to be integrating it well, they've got about 15% of the Sprint customers on their network. They've sunsetted the Sprint brand, but this was a fight where it was David versus Goliath, to actually borrow something I use later for the rundown. This is a company that was on the rise that's now on equal footing with its two biggest competitors. Why is that important? Because you have to invest heavily. The second they finished their 5G network, which is what they're working on now -- and 5G is, you know, the next level of internet connectivity, where you'll get more of a home WiFi-like experience on your phone, on your mobile hotspot, might replace WIFI for some young people that aren't using full-sized televisions.
As soon as you finish that, you probably have to start working on 6G or some sort of 5G+ or whatever it is, it's a constant-investment business. And if you're two-thirds the size or half the size of your biggest competitors, you don't have as many customers to spread that out over. Also, if you're the fair price value play deal, which T-Mobile has always been, you have even less money. And if you're providing better customer service, it would cost money as well. It all gets tricky. So the more customers T-Mobile has, the better it is to compete.
Why is this good for consumers? So there was a lot of pushback led by AT&T and Verizon (NYSE:VZ), about this merger. "We don't want to go from four to three." The reality was, we've always been at three. Sprint has been a dying company that SoftBank wasn't going to invest heavily in; they were keeping the lights on. They were keeping their numbers up with things like "Bring your own phone, we'll charge you $2.99/month"; I forget the exact number, but Industry Focus' own Dylan Lewis did it for a while and just got dirt cheap phone service; that's not sustainable, that's not monetizable.
What T-Mobile has been doing since its former CEO, John Legere, took over in 2012; when he took over the company was a wreck. It was clearly No. 4. They had just tried to merge with AT&T. That wasn't allowed. And basically, he was brought in to make something of the company, to try to put a new coat of paint on and maybe Comcast would step in and buy it, maybe somebody else would be interested. And instead, he systematically said, OK, what's wrong with this business? Oh, it's a business built on monopolies that hates its customers. How do we reverse that? So he said -- and he was a very provocative guy. It's important to note that John Legere stepped away; he could've been the CEO of this company as long as he wanted to be. He either wanted a break or wants to face new challenges or who knows; he hasn't given a lot of detail about what he's doing.
But he came out swinging and he said, look, "We are now the un-carrier" -- and that is their official nickname -- "that we are the opposite of what everyone else in this industry does, and we're going to systematically look at things you hate" -- and I'll give some examples, remember when you had to sign a contract, you got a two-year contract and in exchange for that you got a free phone. Your free phone wasn't free, it was just priced into your contract, and if you left, either your new company had to buyout your contract and you had to send your phone back or you just had to keep paying for it, it made it difficult to move.
So John Legere came out and said, well, we're not going to do that, and we're also, we're going to stop pretending that phones are free. Here is what our service costs, here is what the phone costs. We're still going to give you a 0% loan in most cases, assuming you have decent credit, and let you space that out over a year or two years, whatever you like, but we're not going to pretend that an iPhone doesn't cost any money and we're just giving you one.
Then he said, well, what else, what else are we getting you? Overages. Emily, you may not even remember this, there used to be a point where how many text messages you sent was something you had to think about or how many phone minutes you used; like, you know, did I go over my minutes? And that then became data. And at first, T-Mobile said, OK, where are you using the most data, it's music streaming. All right, we'll make music streaming for free, like, we'll give you -- it's not going to be HD, it's going to be like CD quality, we're going to give you that for free. And then eventually they went to unlimited data for nearly all of its plans.
Let me give you one more -- and this is one that drives me nuts. So I just had to sign up for Verizon, because I wanted a mobile hotspot and I researched what the best one was, and it's the Verizon Jetpack. The T-Mobile One didn't rate comparably. And one, you know, it was a saga even trying to get a data plan, it involved three hours and multiple customer service calls. My Jetpack still doesn't work; I have to have to go to Verizon at some point. But that said, my plan was $80/month knocked down to $75 if I autopay. My bill was, like, $92.
One of the things T-Mobile did is they said our advertised price is going to be inclusive of taxes and fees, because as a consumer, you don't go, well, I paid $55 for the plan and now I'm paying taxes and fees, you want to know what your cost is going to be. It's little things like that that they've been chipping away. Here's the second piece of the problem, their network wasn't good enough. So even while...
Flippen: That's what I was thinking. Whenever I imagine the commercials, right, you see the map of the U.S., and it's always, Verizon covering everything. And typically, when you think about T-Mobile or Sprint, it just doesn't compare, right?
Kline: So it just didn't compare. So in 2012, the T-Mobile network was inferior. That changed a little bit around 2017-2018, whenever the LTE phone came out, because they had Spectrum. They bought Spectrum that could take advantage of that. So they went to Apple and said, hey, we're going to push the iPhone because the iPhone is LTE inclusive. And they got a better level of service for a lot of their customers. That's when I switched. I was a Sprint customer, of all of all things, based on price. And Sprint had fine service in Connecticut, where I lived at the time. So I switched then because T-Mobile became more viable, and that's when I started traveling to West Palm Beach, and T-Mobile had better coverage in both locations; it worked for me. And slowly, they've been building up their network.
So right now they have two networks. They have some customers still on the Sprint network. And, Emily, I'm sure, have you seen those commercials where the old Verizon guy, you know, Paul, who used to say "Can you hear me now?" And his commercial is basically like, hey, I'm Paul, I'm with Sprint now, and our network is just barely good enough. Like, you don't need a great network, it's good enough. Do you know the ads? [laughs]
Flippen: [laughs] I don't know the ads, but it sounds like something Sprint would do. When I think about Sprint as a mobile carrier, I imagine it as the low-cost discount carrier. It's not as good as the competitors, but at least you don't pay as much.
Kline: Yeah. And here's the thing: They weren't wrong saying that. So I've read, there's two big industry studies, and they disagree pretty heavily, they use different methodology, and they disagree who's the best. One clearly says Verizon is the best; one clearly says T-Mobile is the best. So that is a big turnaround. I will say with any of these, it's a little bit more like Sprint says it, because if you're a T-Mobile customer and you live in Peterborough, New Hampshire, which is an absolute dead spot for T-Mobile and Sprint -- maybe it isn't, I haven't been in four years, but it was last time I was there -- Well, you're going to think Verizon and AT&T are great, because you don't have any service. I never noticed any particular issues with T-Mobile or Sprint in the many years I've had them, and I travel pretty extensively. I'm sure, you know, Verizon for years, it had the best network by all accounts.
Now, everybody's network is pretty good, which is pretty much how Sprint is marketing it. And T-Mobile can argue that they have the best network. I would argue that it really doesn't matter unless you happen to live someplace that's a dead spot. When I was just traveling, you know, I was with one of our colleagues, and he had -- I forget, AT&T or Verizon, I have T-Mobile, and we had different levels of service. We had to trade off phones in some cases, you know, to call home or to send messages and things like that. So all of the networks are generally pretty good, but now, T-Mobile can invest in its network over way more customers, spread that cost out, which is a massive advantage. And this company is growing and it is coming hard after its rivals.
Flippen: Does it eventually ever revert back to the carrier status? Because part of the value of T-Mobile was being the un-carrier, taking the complications out of having mobile service while at the same time keeping costs low, not nickel-and-diming you for every little charge. I also can't help but think that as they get larger -- the second-largest carrier right now just in terms of customers -- but as they get larger, that requires them to have better service to invest more money. Does that also mean that they'll just eventually start raising prices and become the same thing that they were fighting against at the offset?
Kline: So I don't think so, because they relentlessly work on this. It's you know, it's self-evaluation, it's sitting down and saying, "Where are we making a mistake?" And not their most recent one; their most recent un-carrier move was regarded as scam calls, but the one before that regarded customer service. And basically they said, well, what's the pain point? The pain points are, you call up, you type in your phone number, you tell it what your problem is, you're on hold for 45 minutes, and then someone picks up and says, what's your phone number and what's your problem? And you say, but why did I just spend all that time typing it in? And they said, OK, here's the deal. You're going to have a team of experts, a team that knows your account. And when you call up, if there's not someone available, you can put in, hey, call me back in half an hour, call me back first available, and that person will call you up and will say, hi, Emily, I hear you're having trouble, your 7 button is sticking on your phone; which is, of course, not how phones work anymore, so that's a terrible example. Or, my son, we have to go to T-Mobile on tomorrow night, Wednesday night, because his charging port is a little bit loose, and we pay for insurance, so they will probably just replace his phone, I'm not entirely sure how that will work, but something along those lines will happen, and his phone will get fixed.
It's not perfect. I would say their customer service is better, it's definitely better than Verizon, which has been baffling to deal with, but they're constantly working on how do we get better. And the more money you have, yeah, they need more people, they need to manage that they have the right staff, they need to keep pushing forward with AI and better websites and other ways to solve more problems without people being involved. But if you have a company that's sitting down multiple times a year and saying, what can we do to "wow" our customers; a silly one? Do you know what T-Mobile Tuesdays are, Emily?
Flippen: I have no idea.
Kline: So if you're a T-Mobile customer, they have an app called T-Mobile Tuesdays, and you go into the app, and there's like a weird mix of free stuff in contests. It'll be like, one free taco at Taco Bell, 15% off a movie rental, you can enter this sweepstakes to win a cruise. And if you're a new customer, we're giving you a major league baseball's streaming service for free for a year. I never remember to do it, but it's always worth it when you do do it. And it's just like, it's silly, but it's creating a good relationship.
John Legere, when he was CEO, was -- you know, he's a bit of a carnival barker, he's a bit of a pro wrestling manager from the 80s. He would endlessly call out AT&T and Verizon, make fun of them, point out things they were doing wrong, point out commercial claims. The new CEO, Mike Sievert, who is a John Legere disciple, is a little feisty. He's absolutely going to call his rivals out, but he's not the showman in that way, but he is an operator. And I feel like he is focusing on that.
I think one of the keys to see is, they own a cable company, call it a next-gen cable company that, as 5G becomes a thing, they will roll out an alternative television service. Well, there's a lot of pain points in television. Are they going to address those? The challenge is, you don't control a lot of those pain points, you can't go to Disney and say, well, we want ESPN but we're not paying for ESPN2, you know. There's a lot of things you don't control there, but I am pretty confident that this company, its entire -- it's like The Motley Fool -- it's entire identity is not being like these other people. And I understand, you grow old or you mature, it's hard to be the rebel forever, especially, you know, three years from now when they catch Verizon and they're the biggest player. But if they change, their customers are going to go away.
And I don't think they have to be dramatically lower priced, I just think they have to be fair priced, and I also think they need to do things, like, they've been really smart about offering heavy discounts. I think it's 50% off to military families, front-line responders right now are getting deals. They need to stay ahead of the public relations narrative. You know, Emily, my biggest issue about this company recently has been they ran a Super Bowl commercial talking about their 5G network. They don't have a 5G network, they have a slightly better 4G+ network that very few phones can take advantage of. And that was the first time I went, ugh! like, the average consumer is not going to understand what that means, and it's kind of a breach of trust.
But in general, this is a well-run company, and I think it's important. Because again, I'll go back to our own company. When the employees buy in, when every person across the company that talks publicly shares the same messaging and it feels organic, it doesn't feel like they've got talking points, that to me is a real winner. Like, I like the management team, I like where they're going. It's not the sexiest industry in the world.
And the thing they have working against them is it's still a pain to switch. Even though they've taken away, you know, you can bring your phone number, they can do it for you in an hour or two, maybe you can buy out your phone, like, it's still not the easiest thing in the world, it's not something a ton of people want to do. So I do wonder, at some point, if they just max out with this business, and that it's a great business and not necessarily a great stock, but I think we're still a few years away from that. You know, their churn rate was very low, less than 1%. So they're holding on to customers well.
Flippen: So you mentioned the -- was it a Super Bowl ad that they ran, essentially advertising their 5G network and now that rubbed you the wrong way. I want to talk about their 5G network and about what carriers, T-Mobile and others, could look like over their relatively near future, especially with the 5G rollout. But first, I want to think about John Legere and how he factors into this equation. Because now that he has stepped down, after the merger, as CEO of T-Mobile, are we going to see more moves from the new management that are more akin to that ad that we saw on Super Bowl? Moving away from this culture and this perception that they've built up? How much of that thesis was attached to John and how much is just attached to T-Mobile?
Kline: He was the CEO when that ad ran. So look, let me defend them internally. Internally, they said, "We have a network that's on the way to 5G," the commercial didn't explicitly say, like, this is the greatest 5G network, it did talk about the road too. But you know it said -- it more or less implied, in a lot of places you'd get a benefit. And you really don't. And I guess we'll know a little bit more when Apple tells us if the new iPhone has 5G, and I think the expensive ones will and maybe not all of them will. I think we're two years away from 5G being viable for anyone based on the phone base. You need a different phone. You need a 5G-enabled phone to take advantage of this.
What T-Mobile is doing is they've improved their 4G network, in some cases, and I would have preferred they said, "In many places we have the fastest 4G on the road to 5G." I know that's hard to do in a $5 million Super Bowl commercial, but that's also when you have the most vulnerable audience. You know, you don't want to bring in a customer under a promise of being better when you're not better. If I was a Verizon customer and I get T-Mobile and my experience is the same, I'm OK with that, but if I was promised better, I'm not going to be particularly happy.
I do worry that -- you know, look, I think Mike Sievert has been trained by John Legere. I think it's one of those scenarios where he should know how to push all the right buttons. That said, the latest un-carrier move was around scam protection and maybe having a second phone number that you give to friends, and it didn't wow me all that much. You know, I would have liked to see a tangible benefit.
That said, as a company, they don't nickel-and-dime you. And I'll give another example. So you know Emily, I travel a lot. When you land in, say, Nassau, the Bahamas, you get a text message from T-Mobile saying, hey, here's the deal. We're giving you 2G service. So if you need to make a phone call or download some data, you can do that. Text messages are free, but if you'd like, you know, the best service possible, you can buy a $5 day pass, but, hey, you're on vacation, you probably don't need that. They don't say that part, but that part is implied. Maybe you land in the next country, and it says, hey, you're in Mexico now. 2G data is free, but it's $0.10 per text message. And they're very straightforward with you.
Whereas my mother came home from that particular trip and opened up her AT&T bill or Verizon or, I forget which one, but they're both similar. And she had left her phone on roaming and just sending a bunch of text messages. She had, like, a $200 bill. Now, I will say, whichever company it was, did reverse that bill, because it never happened to her before. They were understanding. That shouldn't happen. T-Mobile is aggressive, but I would love to see the next un-carrier move just be something, you know, really exciting about cost. You know, "We've cut the price of all of our plans by 10% or here's something that actually bothers you that we're getting rid of."
And I don't know what that would be, because they've gotten rid of a lot of things, but in general, I am a giant fan of when a company says, here's what our industry does wrong. Let's not do those things, and we're not going to fix them all in a night, but we are going to fix them all.
And at some point, they just are the un-carrier. You know, 7 Up doesn't stop being the un-cola; it's always not cola. [laughs]
Flippen: [laughs] You actually hit home pretty strongly with that example there. And I apologize in advance to my parents, because I use them as examples on the show very often, but in this case, it really does apply. Last year, we were in Spain together as a family, we are all together on a family plan under AT&T at the moment, and all had our phone switched to airplane mode. And I remember my mom having a complete fit, because my dad had accidentally switched his phone from airplane mode onto the open wireless signal. So essentially it was also set to roaming mode. And the expenses that would automatically be charged, if you're an AT&T user who did not sign up for one of their international plans, simply because you had your phone on roaming by accident, without actually physically doing anything.
So it's definitely an industry that I think needs to be disrupted from that perspective. T-Mobile and Legere have done a lot to disrupt the industry, but in your opinion, what does it take to make me, to make my family -- longtime AT&T customers, probably paying way more than [laughs] they need to for phone service -- what does it take to convince those people that they need to switch to T-Mobile, in order for T-Mobile to become the No. 1 carrier?
Kline: So a few things have to happen. At some point, Emily, you might not be on your family's plan anymore and maybe someday you and your boyfriend decide we're going to have our own plan. That's a big step, be careful.
Flippen: And so serious. [laughs]
Kline: Yeah. Commingling your phones, that is a serious step. I will say that, I knew I was getting married when my wife and I went to one bank account before [laughs] we had ever talked about getting married. I was like, OK, I guess we're getting married. And this is one of those things, though.
So you might look and say, all right, I live in a city, the coverage is going to be good for any of them. What's the cheapest option? And you're going to find that T-Mobile is almost always the cheapest option. I used to write that story three or four times a year; what's the cheapest plan for families, what's the cheapest plan for individuals? Sprint was sometimes the cheapest option, but Sprint is no more, you can't sign up for a new Sprint account, and Sprint customers are now considered T-Mobile customers.
But there are occasionally AT&T or Verizon promotions, or at least on an advertised price they might seem cheaper, but in general, you'll find T-Mobile is the cheapest. You will generally find them the most transparent. You'll find them the easiest to deal with. Terms on a phone generally don't matter, though sometimes there's different promotions, you know, 2-for-1 on the iPhone SE or something like that. And there are some things sometimes. So that could happen.
The second is, there could be a change of circumstances. This, of course, won't happen to your parents, but you know, let's say somebody else's parents lose their job and all of a sudden, they're looking at every expense in the household. Some people periodically evaluate their expenses; you're supposed to do this. I've written articles saying you should do this. And you might look, and say, OK, I am paying $120/month for three phones. What would it cost me if I switched to T-Mobile? Well, it would cost me $90. I don't know what the real numbers are; I haven't looked at that. Well, what if I switched to T-Mobile's prepaid plan, where you pay in advance? Well, it would cost me even less, but I don't want that, I want to get billed. So people are changing; there is churn. There's not the movement there once was.
I also don't think T-Mobile is going to offer the super-low, you know, even like the reasonable deals. I think they might be offering 4/$25 right now, which I think is a pretty good deal, because that's a real price. Now, I know my plan, which is called, it's their full-fare plan, because I've been a customer for a while. They pay the vast majority of my Netflix bill, because we upped our Netflix, so we can have downloads on four devices. So through T-Mobile, I get billed $3/month for Netflix, because they pay the regular plan.
And they were the first company to really say, hey, that's a cool thing, what if we just bought everybody Netflix? And I'm sure they're getting some form of a bulk deal, but they're paying Netflix. They didn't get this for free, this isn't AT&T saying, we own HBO, we'll give it to you for a year and then we'll start billing you after a year as a sneaky backdoor way to get you in. This is just Netflix, you know, this is T-Mobile writing a big check to Netflix every month, which is absolutely amazing to me, but it's a pretty cool feature. And it's kind of a moat, I like not paying for Netflix, that's great.
Flippen: And it probably makes it less likely for you to switch carriers, not only because of the high switching costs that we talked about before, that inherently exist when you talk about phone service, but also knowing that if you start to switch your carrier, suddenly you have to figure out [laughs] a way to pay for Netflix, right? Suddenly that bill gets bigger on a monthly basis as well.
Kline: Right. And, Alison (sic) [Emily,] let's throw out a few business things here, from an investing point of view. AT&T is a hodgepodge, they own a ton of things, are you confident that they're going to do well as an owner of content-providing companies in the Time Warner family? Are you confident that DirecTV or their cable business? Look, DirecTV is going to go to zero, there's no need for it, you know. Other than the very small percentage of the country that has no access to internet beyond satellite internet, whereby it makes sense to have a separate satellite for your television, that is a super niche product.
Verizon owns Yahoo! [laughs] and who knows what else. T-Mobile has a nascent fledgling cable television business that they purchased, that's run by former industry executives and people who should know what they're doing. And who knows if that will ever become a mainstream real product; it's too small to matter at the moment. But they are laser-focused on what they do. And they don't own something, where I look at them and be, like, why do they own a soccer team in Europe, you know? They own what their business is. And look, diversification is good, but sometimes focus is good as well.
Flippen: So you have a lot of numbers here in our outline, and I want to give you the opportunity to speak to before we wrap up here. We started off the conversation with -- I'm going to call it a fact, it's a debated [laughs] fact right now. But with the news that T-Mobile had overtaken AT&T to become the second-largest carrier. Just from a financial perspective, in terms of customer additions and their financial results, what does this mean for T-Mobile?
Kline: It doesn't mean anything; it's just a sign of progress. Being slightly No. 2 or slightly No. 3 is not relevant, and here's the reality. I think eventually T-Mobile will get to where Verizon is, maybe even a little bit ahead, but it's not like AT&T or Verizon are going away. Those companies, one, they've done better at being entrenched in business. And if it's hard to get a family to switch -- imagine if, like, General Electric, I don't know why I picked that company, but General Electric had to switch all its corporate phones. That's tricky, that's a hard sale to make.
But they've added 1.22 million customers this quarter. And they always say, "Well, we led the category, we added the most customers." They've added the most customers for 22 straight quarters, and it isn't close. If you look at what everyone else is adding, it's 380,000 customers; it's 400,000 customers. The reason there's some debate about who's No. 2 is it depends how you're counting customers and how you're counting watches and things like that. It's a little bit of a squishy number.
Their service revenue has been going up; that is a strong thing. Total revenue of $17.7 billion and service revenue of $13.2 billion. That's higher margin, that is better money to be making. Their net income is not great [laughs] $110 million, $0.09/share. But that's largely because they had a ton of costs associated with the merger. A year from now, there will be savings. They didn't keep two CFOs. [laughs] You know, there are a lot of people that got probably really nice hand shakes out the door, but this originally started as more of a merger of equals. And because T-Mobile grew so much in the multiple years they talked about this, this became, very clearly, that it was T-Mobile taking over Sprint. As you can see by the quick dismissal of the Sprint brand. I actually wasn't in favor of that; I thought they should have used Sprint as their prepaid brand, I thought that would have made a lot of sense, it could've been their discount prepaid brand, because, I think, it's still Metro; I think that's what ...
It's also interesting to point out that Dish Network bought some assets. Sprint had a prepaid brand and that went to Dish Network, which is going to try to launch a fourth carrier. Good luck to you. I don't see that being very likely. They're at 98.3 million total customers. Verizon is at 120 million. There is a perception battle to fight here. Verizon has been telling you it's the best network for decades, even when studies said they weren't necessarily the best network, they kept telling you they were the best network, and citing the studies that did, which is totally acceptable, because who reads the fine print in studies? I've literally taped them and paused them to see whose data they're using, and I've had, you know, people from some of those studies call me up and not be pretty pleased at how I was dissecting that data.
But this is one of those scenarios where Verizon is not going to change. I think it's been shown that companies like Comcast, Verizon, AT&T, can't all of a sudden become customer friendly. It's too baked into the system. So unless we see John Legere pop up as the new CEO of Verizon -- and I'll tell you there's a 0% chance of that happening -- I don't think you're going to see the cultural shift to, sort of, slow this down.
And again, it's a tough business to be in. I'm not sure it's investable, because it's an endless investment in new towers, new technology. I don't think there's any point where we're going to go, you know what, wow! we can watch a hologram on our phone, we could play the latest video games, we can do everything. You know what, stop building new networks, we're good. There's always going to be higher demand and -- and this is an important part of 5G that nobody talks about -- the Internet of Things will be powered by 5G.
So the MRI machine at your hospital is going to know that a light bulb in the MRI machine is going to wear out in exactly three weeks. It's going to self-diagnose, place the order and that light bulb is going to show up 48 hours before it has to be replaced. That's an Internet of Things function. So is your Nest Thermostat. And there's going to be an incredible amount of bandwidth doing, I'll call, the microtransactions of just all those little things. And does that mean fully automated homes? I think the jury is out on that one. That may not happen, but it's absolutely going to happen in high-end, expensive equipment, that, look, a hospital can't afford to have its MRI machine be out any longer than it needs to be.
So I think there's a really exciting future for this business, I am not entirely sure about the stock. I don't own it, I am a fan, I root them on. I like any company that's a disruptor and that comes in and says, yuck! You treat people badly and I'm not going to do that.
Flippen: Yeah. And just to, kind of, hit that point home really quickly. From T-Mobile's perspective, obviously, I think you've converted me; I'm going to tell my parents you need to listen to this episode to see if maybe we switch our family plan over to Verizon. [laughs] You've definitely enjoined me in that indoctrination of T-Mobile.
But from the stock perspective, you like all the moves they're doing, they're clearly moving up in the world just in their relevance as a carrier. Do you not like the investment just because it's such a low-margin business?
Kline: It's a low-margin business, there is disruption potential. Look, Wi-Fi calling has never particularly caught on. Some of the cable companies, I think, Comcast still does, have sold phones that prioritize WIFI networks, and they, in theory, charge you less. And that's just never resonated with consumers. But at some point, maybe Apple sells phones with WIFI plans built in and you don't need the carriers. I think there's some risk here.
Look, I would tend to argue that this is like a poor man's Costco, that there will probably be growth, but there's not going to be a ton of growth. There's an endless expense in terms of, you know, you have to keep building the network. I'm not against holding it, I'm not negative on it, but I also think there are probably better places to place your money. And I think that's OK. You know, not every stock has to be this crazy, hard-charging.
Now, that said, I don't know what other businesses they're contemplating. I don't know what moves they might make. This is a company that could do something that surprises you, but there's also other technologies. You know, these networks of satellites that are out there that are going to deliver internet -- is that someday going to be combined with Wi-Fi calling and create a new viable global network? I don't know the answer; maybe Jason Moser does, I don't know the answer.
And again, I'd be perfectly happy to own shares, but I don't know that I would go buy one when I could go buy shares of Apple or companies that I think are as strong, also treat people well, but have -- you know, there's just so much fixed expense.
Flippen: Totally understood. And, Dan, as always, thank you so much for joining me, providing your insight on T-Mobile and all these telecom carriers. This is not an industry that I actively follow, at least not the way that you do, so your insight, as always, is greatly appreciated.
Kline: Thanks for having me. I think you're, like, the seventh host I've done a show over the past four years on this subject in some form or other.
Flippen: [laughs] You are truly the expert. Listeners, that does it for this episode of Industry Focus. If you have any questions or want to chew our ear off about how much you like Verizon or AT&T, [laughs] you can always send us an email at IndustryFocus@Fool.com or tweet us @MFIndustryFocus.
As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against any stocks mentioned, so don't buy or sell anything based solely on what you hear.
Thanks to Tim sparks for his work behind the screen today. For Dan Kline, I'm Emily Flippen. Thanks for listening, and Fool on!