T-Mobile (NASDAQ:TMUS) just put a cap on a very strong 2020. It closed its merger with Sprint and added 5.5 million postpaid subscribers, including 2.2 million postpaid phone subscribers.

While competitors AT&T (NYSE:T) and Verizon (NYSE:VZ) haven't released their fourth-quarter results yet, it's a pretty safe bet T-Mobile managed to add more subscribers than either competitor. Verizon lost postpaid subscribers through the first nine months of the year, and AT&T has added less than a million. 

And investors have good reason to remain optimistic about T-Mobile's chances of taking more market share in 2021. Here are three reasons why.

Drones forming the T-Mobile logo in the night sky.

Image source: T-Mobile.

1. A return to a normal switching environment

T-Mobile has historically taken a large share of customers when they're switching carriers, but switching activity was suppressed by the COVID-19 pandemic. Industry churn declined across the board.

Churn started to pick back up in the fourth quarter. T-Mobile reported a monthly churn of 1.03% for the quarter, up from 0.8% and 0.9% in the second and third quarters, respectively. Furthermore, CEO Mike Sievert said the first week of December saw the highest switching rate of the year, including pre-COVID, during an investor event last month.

At this time last year, T-Mobile had just posted record low churn rates, and former CFO Braxton Carter was saying he wished churn was higher. "When you have the higher switching pool, i.e. churn's going up across the board, it is much more cost effective for us to grow and scale this business," he said at an investor conference last January. So, as consumers get more confidence, the health environment improves, and carrier switching goes up, it's a big opportunity for T-Mobile to take market share. 

2. There's still room to improve Sprint subscriber retention

While investors should expect overall industry churn to increase in 2021, benefiting T-Mobile, the un-carrier's own subscriber base may not see as big of an increase. That's because T-Mobile's still transitioning the Sprint customer base.

The early results of T-Mobile's improved subscriber retention over Sprint have been fantastic. Sprint had a monthly churn rate of 2.06% in the December quarter last year. As mentioned, the overall churn for T-Mobile's fourth quarter of 2020 was just 1.03%. Analysts at New Street Research say that number suggests churn reduction for Sprint's legacy subscriber base of about 60 basis points, based on them accounting for 35% to 40% of New T-Mobile's total subscribers. That's four times the reduction seen at AT&T and Verizon.

Importantly, there's still room for improvement. The analysts believe there's still a 60 basis point churn gap between legacy Sprint subscribers and T-Mobile subscribers. That means higher retention and more net subscriber additions in 2021 as churn improves.

Indeed, T-Mobile says just 20% of Sprint customers have been fully migrated to T-Mobile's network. Just 4 million use the network the majority of the time. What's more, it has a playbook for reducing churn, which it executed over the last seven years with T-Mobile.

3. Continued leadership in 5G

The final reason T-Mobile will continue to take market share in 2021 is because it's the leader in 5G, and it should continue to lead the market in coverage while offering faster speeds to more of the population. T-Mobile ended 2020 covering 106 million people with its ultra-capacity 5G network, which offers speeds up to 300 Mbps. That's about seven times faster than its LTE network. It expects that number to reach 200 million by the end of 2021.

AT&T and Verizon are more capacity constrained in their 5G buildout and they're spending big for new spectrum licenses similar to the spectrum T-Mobile is using for its ultra-capacity network. They then have to clear and deploy that spectrum, which takes time. As a result, T-Mobile will likely remain the leader in 5G connectivity through 2021, which should be very attractive for both consumers and enterprises.

T-Mobile also expects to use its 5G network to provide home broadband. It's tested home broadband in several markets on its LTE network, but upgrading to 5G will give it competitive speeds and more opportunities to sell wireless service as well. That could mitigate AT&T and Verizon's advantage in the home broadband and video space.

Combined with a higher switching environment, a leading network, and the ability to offer home broadband, services will strengthen T-Mobile's ability to grow subscribers economically in 2021 and take market share.

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.