Readers know I've been bullish on T-Mobile U.S. ever since it finalized its merger with Sprint back in April of this year. Not only has T-Mobile successfully disrupted the wireless industry with low-cost plans and a focus on customer pain points, but the acquisition of Sprint's valuable 2.5 GHz spectrum has also put T-Mobile at the forefront of the ongoing 5G rollout.

The announcement of a 5G iPhone only came in October. Yet T-Mobile's results for the third quarter ended Sept. 30, 2020, demonstrated the company's continuing market share gains, with best-in-industry net additions, revenue, and profitability that surprised to the upside.

It appears all systems are go for T-Mobile, and 5G leadership should continue to benefit the company in the quarters and years ahead.

A cell tower with signals coming out of the radios.

Image source: Getty Images.

Another winning quarter

Despite the ongoing pandemic limiting the overall churn of the telecom industry, T-Mobile outperformed. T-Mobile benefitted from industry churn in years past, stealing customers from AT&T and Verizon Communications. The current stay-at-home environment means that few people are venturing out to switch their phone plans, which could actually be a modest headwind for net addition growth.

Nonetheless, T-Mobile continued to outdo rivals in terms of postpaid net additions and postpaid phone net additions.

Company

Q3 Postpaid Net Additions

Q3 Postpaid Phone Net Additions

Mobile Segment Adjusted EBITDA Growth (YOY)

T-Mobile U.S. (NASDAQ:TMUS)

2,035,000

689,000

110%

AT&T (NYSE:T)

1,081,000

645,000

(0.5%)

Verizon Communications (NYSE:VZ)

553,000

283,000

1.4%

Data source: T-Mobile, AT&T, and Verizon third-quarter earnings releases. YOY=year over year.

As you can see, T-Mobile is outdoing the competition with respect to net adds. As the low-cost operator, it's also forcing its competitors to lower prices or increase promotions, putting pressure on their profits even as they eke out marginal customer gains. While T-Mobile's year-over-year growth was obviously helped by the addition of Sprint since April, T-Mobile still grew adjusted EBITDA 2% relative to the prior quarter, when Sprint was already in its results. That amounts to roughly 8% annualized growth, compared to Verizon's marginal profit gains and AT&T's slight declines.

CEO Mike Sievert added on the conference call with analysts:

First, the industry continued to feel the impact of COVID-19 in Q3 with a much lower switching environment than a year ago. As a share taker, that is a clear headwind to growth. And yet, we still led the industry in postpaid growth adds for phones and net adds. This is particularly exciting when you consider that we also essentially retire[d] the Sprint brand for new customers at the beginning of August, which immediately shut off a certain flow of gross adds.

Hiking guidance

In addition to these great numbers, T-Mobile also hiked its guidance for the second half of the year. In fact, the company already hit its original second-half guidance for total net additions in the third quarter alone. Most notably, T-Mobile increased second-half adjusted EBITDA guidance from an initial range of $12.4 to $12.7 billion to between $13.6 and $13.7 billion, and increased free cash flow guidance from a range of $300 million to $500 million to a range of $700 million to $900 million.

Investors should know the company is only expected to realize $1.2 billion in cost synergies this year, out of an expected $6 billion total. Management expects synergies to more than double from this year to next as the company more fully integrates Sprint into the T-Mobile network and retail footprint. T-Mobile is also moving faster on the deployment of 5G, where it currently has a lead.

Don't sleep on mobile broadband

Finally, another positive was the momentum seen in T-Mobile's nascent mobile broadband offering. While the company doesn't break out individual broadband service revenue, the number of sold or leased mobile broadband and Internet of Things devices almost doubled quarter over quarter from 1.2 million to 2.2 million.

Just yesterday, T-Mobile announced it would be expanding its $50/month home broadband product to 130 additional cities and towns across Michigan, Minnesota, New York, North Dakota, Ohio, Pennsylvania, South Dakota, West Virginia, and Wisconsin. For now, T-Mobile's products are on 4G LTE and aim to serve rural households with limited access to high-speed broadband. However, the company expects it will bring 5G broadband coverage soon, with the aim of covering 50% of U.S. households within six years.

Stick with T-Mobile

All in all, it was a strong quarter for T-Mobile, with the 5G iPhone cycle and broadband products not even kicking in yet. It remains one of the safer plays to play the 5G wireless revolution in the market today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.