Comcast (CMCSA -5.82%) and Charter's (CHTR -2.12%) wireless businesses got a lot bigger in 2022, and investors across the industry are wondering what 2023 may bring.
The cable giants added a combined 2.8 million wireless subscribers over the last 12 months. Both companies just reported their biggest quarters ever, and they're investing to grow their subscriber base profits by building out their own 5G networks.
Do investors in T-Mobile US (TMUS -0.08%), AT&T (T -1.37%), and Verizon Communications (VZ -0.68%) need to worry about the cable companies?
A success, but not a huge success
For all the excitement the cable companies have around their mobile business, it's worth putting their success in perspective.
As of the end of the third quarter, Comcast had 5 million Xfinity Mobile subscribers and Charter had 4.7 million Spectrum Mobile subscribers. For reference, T-Mobile's added 6.3 million postpaid subscribers in the past year, 3.3 million of which are phone subscribers. The rest of the industry is growing as well, with AT&T adding customers and Verizon standing still for the most part.
In other words, cable is winning customers, but it's not a disproportional amount of new customers. What's more, T-Mobile CEO Mike Sievert points out that the customers the cable companies are winning are more on the low end. At a recent investors conference he said cable's target customer base is "a little bit more on the one or two unit households, a little bit more on BYOD [bring your own device]."
The highest-value customers in wireless are postpaid family plans. And if a carrier can get them locked in on an equipment installment plan, so much the better. Those are customers the big three wireless carriers are going after. AT&T, in particular, has been most aggressive with its device promotions, which require very long commitments, in order to grow its postpaid phone subscriber base.
Cable's success hasn't been particularly disruptive to the industry so far, and it doesn't look like 2023 will change that. "The big question on everybody's mind isn't 'is cable going to come?' It's 'is cable going to come and is there going to be a resulting round of craziness in the industry that sort of ruins the neighborhood?'" Sievert said. "I don't foresee that."
Indeed, the biggest competition for the big three wireless carriers will continue to be themselves, as they battle for the highest-value customers in the industry.
What investors should watch
While cable attempts to make further inroads in the wireless industry, there are some important factors investors in the big wireless companies should pay attention to in order to ensure they're not losing ground.
First, subscriber churn. Cable's subscribers are mostly coming from the big carriers. The fewer customers leaving a carrier, the less chance there is for them to sign up for Comcast or Charter's mobile service.
T-Mobile showed improvements in churn in the third quarter, while AT&T and Verizon each took steps back. The latter two may have experienced higher churn rates as a result of price increases for some customers.
But investors should also keep an eye on each carrier's revenue per user. Excluding one-time price hikes like AT&T's and Verizon's, investors will want to see revenue per user climbing as well. That's an indication that the carriers are holding onto and attracting high-value customers.
The carrier that can successfully capture the highest value customers and hold onto them will be the biggest winner in 2023 and beyond. That's not going to be the cable competitors. T-Mobile is well positioned with its 5G network advantage, but AT&T remains aggressive in going after that segment as well.
