T-Mobile (TMUS +0.11%) added more home internet subscribers than any other company last quarter. The wireless carrier added 560,000 subscribers, reaching more than 1.5 million total just five quarters after its official launch.
By contrast, Comcast (CMCSA 0.04%) ended the second quarter with the same number of broadband subscribers it started with. While many investors were concerned with the result, management sees entrants like T-Mobile as a temporary impact without long-term potential to eat into its results in a meaningful way.
T-Mobile faces two challenges to keep growing its home internet service going forward.
Churn is going to become a factor
T-Mobile's home internet service hasn't been around long enough for very many people to cancel it. But going forward, that's going to be a very different case. "As the base grows, we know that math is math, and churn will grow," T-Mobile CEO Mike Sievert told analysts during the second-quarter earnings call in late July.
Subscribers can cancel for any number of reasons. Customers will move, and T-Mobile might not be able to serve them. They might switch to another service provider like Comcast. They may decide they don't need home internet at all and that their mobile wireless connection is good enough.
As subscribers begin to cancel the service, T-Mobile will need to bring in more gross additions to offset those losses. In the near term, there are several opportunities for T-Mobile to grow those gross additions. It still has a massive base of T-Mobile wireless phone service subscribers to sell into. It's building out its 5G network quickly and will soon cover the entire nation, making more households eligible for the service. And it's just starting to tap the enterprise and small business market for broadband service.
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In the long run, however, there are fewer catalysts that could lead it to maintain such strong gross additions. And as the base grows, the number of customers leaving the service every quarter will naturally grow as well.
To be sure, churn is a factor Comcast has to deal with as well. To that end, it's maintained relatively low churn rates despite the competition from T-Mobile. Churn levels remain below where they were in 2019, management says.
T-Mobile faces physical limitations on how many customers it can serve
Another factor that will eventually impact T-Mobile's growth is that it physically cannot serve that many households without compromising the connections of its wireless customers. Since T-Mobile's main business is selling wireless phone service, it's not going to offer home internet service in markets where it doesn't have the bandwidth to serve both.
While T-Mobile set a goal of reaching 7 million to 8 million households by 2025, it's not clear how many more it could serve beyond that. Doing so would require T-Mobile to acquire more spectrum licenses and deploy equipment to utilize those frequencies to add capacity to its network. Meanwhile, the bandwidth demands of wireless customers in the 5G era are still relatively unknown. T-Mobile is modeling aggressive increases in data usage, but really smart people have repeatedly been very wrong about how much data people will use in the future.
At some point, T-Mobile won't be able to serve as many new households, even if the demand is there. Combined with the growing impact of churn as the base grows, it's no wonder Sievert tempered comments about his outlook of 7 million to 8 million households by 2025.
"We have achieved now a pace that, if you were to extrapolate it forward, gets us to our goals," he said. But he also cautioned, "That wasn't a forecast for you though. That wasn't a prediction that it will be at that pace; it could be higher, it could be lower. This is an emerging business."
The future of T-Mobile's home internet business is still very much up in the air, and it won't be able to pull subscribers away from Comcast and other cable providers indefinitely.
