T-Mobile US (NASDAQ:TMUS) once again outpaced the competition in the first quarter, adding 1.2 million postpaid subscribers, including 773,000 postpaid phone subscribers. Both numbers bested AT&T's (NYSE:T) and Verizon's (NYSE:VZ) first-quarter numbers, and there's good reason for T-Mobile investors to remain optimistic about the future.
Here are three tailwinds pushing T-Mobile's net additions higher.
Reopening will lead to more switching
T-Mobile has historically taken share when subscriber churn rates increase. The pattern repeated itself in the first quarter, where AT&T and Verizon saw an increase in churn from the fourth quarter and T-Mobile won share.
Verizon, in particular, saw a decrease in market share. The leading carrier lost 178,000 postpaid phone subscribers across its consumer and business segments, with a blended churn rate of 0.81%. That churn rate is up just slightly from the 0.80% rate it posted in the fourth quarter.
Verizon's customers are leaving for T-Mobile and AT&T. AT&T managed to add 595,000 postpaid phone subscribers, still behind T-Mobile's 773,000 net additions.
During T-Mobile's first-quarter earnings call, CEO Mike Sievert reminded investors: "Both of our major competitors are porting very negatively to our flagship T-Mobile brand." In other words, more people are switching from AT&T or Verizon to T-Mobile than vice versa.
The porting numbers around the Sprint brand, however, are a different story, which shows AT&T and Verizon are more competitive with T-Mobile as a whole. But as T-Mobile migrates more customers from Sprint to T-Mobile, it should show overall strength in switching. And as switching picks up in 2021 post-COVID, T-Mobile should be a net winner.
The 5G lead is real
T-Mobile has built a substantial lead with its 5G network, and it's positioned to sustain that lead for several years. It already covers 295 million people with its low-band 5G network, which offers a modest speed increase from LTE. Additionally, 140 million people have access to T-Mobile's mid-band 5G network, which offers a significant improvement over LTE. T-Mobile expects coverage to reach 200 million by the end of the year.
AT&T and Verizon simply can't compete with T-Mobile's 5G network. They don't have the spectrum licenses to deploy a network that offers comparable coverage and speed, and they won't have them until the end of the year. While Verizon is positioning itself to deploy those licenses quickly in an effort to catch up, AT&T's not keeping pace.
As a result, T-Mobile will be tough to beat in 5G capabilities over the next few years. Customers are increasingly aware of the difference in 5G networks, and making decisions based on each carrier's 5G capabilities. Sievert told investors that the percentage of customers who say T-Mobile is the leader in 5G more than doubled year over year.
Relative strength in subscriber retention
T-Mobile's postpaid churn was still higher than both AT&T's and Verizon's in the first quarter. About 0.98% of its postpaid phone subscribers left each month in the first quarter. However, T-Mobile improved its churn rate for both T-Mobile and Sprint customers compared to the fourth quarter, something neither AT&T nor Verizon can say.
Sprint historically had the highest churn in the industry, and T-Mobile is working to bring that down. It's doing that by offering the same benefits it offers T-Mobile customers, working to migrate the subscriber base to T-Mobile, and moving Sprint wireless traffic to the T-Mobile network. On the latter points, T-Mobile has moved 20% of Sprint's subscriber base to T-Mobile, and 50% of remaining Sprint traffic now goes over the T-Mobile network.
As subscriber retention improves relative to its peers, it'll boost T-Mobile's net additions by reducing the gross additions the company needs in order to show substantial subscriber growth. That's especially true when combined with the aforementioned tailwinds, where customer switching should pick up in the latter half of 2021 and customers will likely show a preference for T-Mobile's superior 5G network. The future looks very bright for T-Mobile.