Most large cable companies enjoy certain advantages. Because it's expensive to dig up the ground and lay coaxial cable or fiber, there is usually only room for so many cable companies in any given market. Sometimes, there's only one.
Needless to say, that's allowed large broadband companies to enjoy steady growth and high profit margins amid limited competition.
However, with the advent of 5G, could things change? 5G wireless leader T-Mobile US (TMUS -2.03%) is hoping the answer is yes.
The latest un-carrier move: "Cheating" on your cable company
T-Mobile brands itself as the consumer-friendly, affordable alternative to the big phone companies, or the "un-carrier." Over the years, T-Mobile has periodically introduced "un-carrier" moves, or consumer-friendly moves meant to undercut its larger rivals. These have included eliminating data caps, including all taxes and fees in its advertised subscription price, eliminating high-speed roaming charges in international countries, allowing unlimited streaming, and paying for part of customers' Netflix subscriptions.
The latest un-carrier move was introduced yesterday, and involved T-Mobile's new 5G wireless broadband service. T-Mobile had already been making good progress on wireless broadband, piloting the service in select markets in 2020, before rolling it out more broadly in early 2021. Fast forward one year, and T-Mobile just hit 1 million customers on April 20.
Yesterday, however, T-Mobile announced a very aggressive promotion to turbocharge that broadband growth.
The new offer
T-Mobile is offering several perks to nudge people along into trying 5G broadband. These include:
- Test-driving T-Mobile's wireless broadband 15 days for free, while still keeping your old provider.
- If customers do switch and there are termination fees, T-Mobile will reimburse those fees up to $500.
- Price lock: Customers get $50 broadband, including all taxes and fees, with no price hikes ever as long as they retain the service.
- With a Magenta Max family plan (T-Mobile's premium wireless plan), T-Mobile will treat broadband as another line in the family and thus charge just $30, down from $50.
- $50 off any streaming device, including Chromecast, Amazon Fire TV, or Roku.
- 50% off YouTube TV for one year if customers also have Magenta Max, supplementing the existing "Netflix on Us" promotion, as well as free Paramount+ for a year.
- Business internet for 100 gigabytes (GB) to 300 GB of data for $50 to $70 per month.
Wireless broadband has existed before in suburban and rural markets. However, that has traditionally been through smaller independent service providers, and done via Wi-Fi radios, not a cellular signal. With midband 5G just being rolled out at scale last year by T-Mobile, this will be an early test of 5G technology to make a real disruptive breakthrough in an established industry.
What this could mean for T-Mobile
T-Mobile has put forth a goal of getting 7 million to 8 million wireless broadband customers by the end of 2025. At $50 per month for 8 million households, that would bring in about $4.8 billion in service revenue annually. For context, T-Mobile did a little bit more than $58 billion in service revenue last year.
However, T-Mobile usually guides conservatively, and it may now see an opportunity to move more quickly. Since T-Mobile delivers broadband from its mobile towers, it doesn't have to spend money to dig trenches to lay and maintain cable or fiber. Therefore, a lot of that potential broadband revenue could fall straight to the bottom line. That would make a more material difference to core adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), which totaled $23.6 billion in 2021.
All it's cracked up to be?
Skeptics might call this a defensive play, as cable companies such as Comcast and Charter are also now offering mobile plans, often at low prices when bundled with their wired broadband service. So cable is gunning for mobile revenue, while mobile companies are now beginning to roll out 5G broadband to challenge cable.
What will make the competitive difference? Value and customer service. As of now, Comcast and Charter use Verizon Communications as their mobile wholesale network. Verizon has very fast millimeter wave spectrum in select markets, but millimeter wave doesn't travel very far from towers. T-Mobile has a two-year lead on Verizon in rolling out midband 5G, which has much greater range.
That's why I'd give the edge to T-Mobile over the cable companies for now, though the competitive landscape is fluid. That's also assuming 5G broadband, which I haven't tried, acts as a good-enough replacement for wired coaxial and fiber solutions. However, given the recent growth to date of T-Mobile's offering, it appears to be at least a "good-enough" solution for many areas of the country.
In any case, the potential rise of 5G broadband is a big development for telecom investors to monitor in 2022.