It's been known for a while that scrappy challenger T-Mobile (TMUS -2.81%) currently has a lead in 5G deployment over AT&T (T 1.11%) and Verizon (VZ 0.30%), which shared the title of having the best networks in the 4G era.
However, it appears as though some investors are skeptical T-Mobile will retain a sufficient lead over the long term. This is in spite of T-Mobile's management adamantly saying it would stay about two years ahead of Verizon and AT&T for the duration of the 5G era, not just the next two years. Although T-Mobile has outperformed Verizon and AT&T over the long term, it's trailing its peers this year.
However, two bits of news this month suggest T-Mobile's lead may actually be increasing, not narrowing.
AT&T and Verizon run into regulatory hang-ups
When T-Mobile acquired Sprint back in early 2020, it also acquired key mid-band 5G spectrum. Mid-band will unlock the true promise of 5G, because low-band 5G, while faster than 4G, isn't a game-changer in terms of speeds. Meanwhile, high-band or "millimeter wave" provides lightning-fast 5G speeds, but it doesn't travel very far from the source and has trouble penetrating walls and objects in its way. That leaves mid-band as a key differentiator, as it has sufficient range combined with truly difference-making speeds over 4G.
T-Mobile was early on the mid-band bandwagon, but Verizon and AT&T were late, concentrating instead on millimeter wave. However, both now seem to realize that won't be sufficient to drive scale, so both Verizon and AT&T spent huge amounts of money in last year's "C-band" mid-band spectrum auction. Verizon shelled out $45.5 billion and AT&T spent $23.4 billion. However, only one tranche of C-band became available at the time, with the remaining tranche of spectrum not available to be cleared until 2023. This is why most analysts peg T-Mobile's lead at two years.
However, even deploying the first tranche of C-band will now be delayed for Verizon and AT&T. That's because the Federal Aviation Administration (FAA) is worried that C-band spectrum could interfere with cockpit safety systems, especially if planes have to fly into a wider area around cities to avoid bad weather. In fact, the FAA had objected last year, before the December 2020 auction, but the Trump administration disagreed and went ahead with the auction anyway.
Now that the FAA is raising renewed safety concerns, both AT&T and Verizon are delaying the deployment of some 5G services that were set to go live on Dec. 5 by at least a month. The FAA and FCC now need to work out the problem, with an uncertain end date.
Meanwhile, T-Mobile continues to roll out 5G faster than expected
Not only are Verizon and AT&T experiencing further delays, but T-Mobile is surging ahead with its 2.5 GHz mid-band spectrum ahead of schedule. The company recently issued a press release touting that its "Ultra Capacity" mid-band 5G now covers 200 million people, weeks ahead of the company's original goal of reaching 200 million with mid-band by the end of the year. That covers about 80% of T-Mobile's customer base, and management has stated it plans to cover 300 million people within the next two years.
Moreover, C-band is between 3.7-4.2 GHz, a higher frequency than the 2.5 GHz mid-band spectrum T-Mobile has in droves. That means it's a bit faster, but it also doesn't propagate as far. So even after Verizon and AT&T get all this spectrum and deploy it, T-Mobile believes it will still have a cost advantage outside of densely packed cities, since it will have to deploy fewer towers to cover the same number of people. For its part, T-Mobile also participated in the C-band auction to fill in gaps for densely packed cities, but it only had to spend $9.3 billion. And even after 2024, T-Mobile will have more total mid-band spectrum than AT&T and Verizon, even including the C-band auction, and it will still have much, much more 2.5 GHz spectrum and below.
Could next year be a rebound year for T-Mobile?
November has already seen AT&T and Verizon's 5G deployment delayed by a month, while T-Mobile is deploying mid-band 5G a month faster than expected. As more and more consumers acquire 5G-enabled phones, T-Mobile will have a chance to separate itself more and more. Perhaps 2022 will be a year in which T-Mobile's stock returns to its historical trend of outperformance.