T-Mobile (TMUS -0.07%) is navigating the slowdown in the wireless industry better than rivals AT&T and Verizon. While AT&T reported slowing postpaid phone subscriber growth in the second quarter and Verizon lost subscribers, T-Mobile put up record numbers. The company gained 760 thousand net postpaid phone customers during the quarter, and its postpaid churn dropped below that of its rivals.

"If you were wondering how T-Mobile would perform if growth in our category moderated, I think you'll find the answer in our latest results," proclaimed T-Mobile CEO Mike Sievert in the company's earnings release.

Despite the strong Q2 results and boosted guidance for the full year, T-Mobile is girding for a tougher environment ahead. On Thursday, the company announced significant layoffs that will reduce the number of corporate, back-office, and technology roles. T-Mobile will let about 5,000 employees go, approximately 7% of its headcount.

A tougher environment

While T-Mobile's Q2 results suggested that the company is having little trouble winning and retaining customers, customer acquisition and retention costs have been rising. "What it takes to attract and retain customers is materially more expensive than it was just a few quarters ago," said Sievert in an email to employees.

Up until now, T-Mobile has been able to offset those rising costs by unlocking cost savings from its merger with Sprint and by growing its high-speed internet business. That's no longer enough. The pandemic-era boom that drove the wireless industry's growth is over, meaning that wireless carriers will likely need to be more aggressive on price to keep growing.

T-Mobile has already taken some steps to keep churn in check. The company recently rolled out a new premium wireless plan that gives customers the ability to upgrade their smartphones at least once per year, with the same access to deals as new subscribers. By keeping subscribers in a perpetual state of paying off their smartphones, T-Mobile can make the cost to switch providers onerous.

While T-Mobile is one of only three major wireless carriers in the United States, the company is facing competition from cable companies that are using wireless services to retain customers. Comcast now has nearly 6 million wireless lines through its Xfinity Mobile service, adding 316,000 new lines during Q2 . Charter Communications added 648,000 mobile lines, bringing its total to 6.6 million.

These cable companies aren't building out their own wireless networks. Instead, both Comcast and Charter are mobile virtual network operators (MVNOs) running on Verizon's network. MVNOs are a dime a dozen, but the cable companies don't necessarily need their wireless services to be big sources of profit.

These inexpensive wireless plans serve to make it more complicated and difficult for cable customers to drop their TV or internet service. Xfinity Mobile, for example, offers wireless plans starting at just $15 per month for Xfinity internet customers. T-Mobile's cheapest postpaid plan is $30 per line per month when there are 3 lines active, although T-Mobile's plans come with more high-speed data.

No guidance change

While T-Mobile is enacting these layoffs to offset the impacts of increased competition, the company reiterated its full-year guidance. T-Mobile still expects to gain the same number of net new subscribers in 2023 as it did when it last reported results in July.

The company will take a $450 million pre-tax charge against earnings in Q3 related to these layoffs. T-Mobile plans to provide competitive severance plus an additional transition period for employees. Following the completion of this headcount reduction, the company does not expect any further large reductions going forward.

As inflation puts pressure on consumers, it's not surprising that cable companies are successfully enticing their customers with inexpensive wireless plans. That trend looks likely to continue, and T-Mobile will need to work harder to hold onto its customers. While the company's growth was solid in Q2, a slowdown could be coming as the company grapples with a shifting competitive landscape.