- Convergence between wireless and wireline emerged as a big topic in 2024
- AT&T and Verizon are moving to bundle more fiber-based internet services with mobile
- T-Mobile is getting involved in fiber JVs, but it’s downplaying the importance of a fiber footprint for obvious reasons
If T-Mobile is contemplating a bigger footprint in fiber, it’s not showing its cards, which would be dumb, right?
Instead, it’s publicly digging in its heels right where it’s at, which, by the way, isn’t a bad place. At over $284 billion, its market cap recently set a record as the highest ever for a U.S. service provider, far exceeding AT&T and Verizon’s current valuations. It remains a darling of Wall Street. Where it lagged big time in 4G LTE, it established a commanding lead in 5G.
But AT&T claims it’s winning the race to convergence – one that Verizon ramped up with its $20 billion planned acquisition of Frontier. Granted, T-Mobile is increasing its fiber presence with investments in joint ventures, but it’s not exactly jumping in head first. What gives?
“When you look at convergence, we believe that convergence is here,” said T-Mobile Consumer Group President Jon Freier during a Wells Fargo conference this week. “It’s not coming. It’s here.”
It’s a message that T-Mobile has been delivering for a while now. During the company’s Capital Markets Day in September, CEO Mike Sievert said they have nothing to fear from convergence because everyone’s already living in a converged world. Of course, he also left the door open in case, you know, they decide an acquisition looks good. But for the most part, he downplayed the importance of wired/wireless convergence.
Maybe that’s because for the last five years, more than 80% of customers have been able to purchase a mobile product and a broadband product from the same provider, and during that time, “you’ve seen our results and how we’ve been successful” during that time, Freier said this week. “We’re actually growing our share in fiber markets where so-called convergence is already here.”
Generally speaking, there aren’t a lot of options when it comes to broadband providers in a given market. With wireless, “it’s a very different considered purchase,” he said, noting that certain high-end offers come with streaming, in-flight and international coverage benefits. “The value proposition is very different.”
Many people are using autopay anyway, “so it’s not like you’re at the old days of sitting at your kitchen table writing out three checks and wouldn’t it be great to write one check,” he said. “Everybody is on autopay.”
However, he conceded that churn is lower when customers have multiple products and connections attached to one account. That applies to fiber, fixed wireless access (FWA) and other types of devices, such as tablets and watches.
Why all the fuss over convergence?
Given that T-Mobile appears to be doing just fine without a major fiber footprint, why does Wall Street seem fixated on whether T-Mobile will make a big fiber acquisition, going so far – crazy as it sounds – to identify Charter Communications as a potential target?
None of the major U.S. telcos have a significant fiber footprint, although AT&T this week said it plans to bump up its fiber ambitions to pass 50 million locations by the end of 2029.
Analyst Craig Moffett of the Wall Street firm MoffettNathanson for some time now has argued that convergence doesn’t make sense for wireless carriers, in part because their fiber footprints are tiny.
“Suddenly, all of the carriers are crowing about convergence. For the life of us, we can’t understand why,” Moffett wrote in a report in August. “We’ll say it again: If the world moves in the direction of convergence – or worse, if the carriers help move it there themselves – then the carriers will lose (to Cable) everywhere they don’t have a wireline network. And that’s almost everywhere.”
Benefits of convergence
In a note for investors today, TD Cowen analysts said they’re seeing operators make various claims about the benefits of convergence. Verizon takes the most bullish stance, suggesting that postpaid phone churn is reduced by 50% when bundled with fiber. AT&T falls somewhere in the middle, noting 25 basis points lower postpaid phone churn in fiber markets.
“T-Mobile continues to be the most bearish on convergence, acknowledging that churn benefits exist when bundling, but notes that they also exist when simple bundling other products like tablets,” the analysts said. “Additionally, T-Mobile doesn’t believe convergence drives gross adds, noting that bundle discounts only drive 5% of switching. It further discredited the share gains that competitors have mentioned, noting that it doesn’t lose wireless share in AT&T’s fiber markets.”
If convergence turns out to be a real differentiator, it could be a meaningful risk for T-Mobile later this decade, they added. But “we won’t know the answer to this for some time as T-Mobile has plenty of phone runway with rural/enterprise greenfield expansion, and by then it may be too late for T-Mobile to be a converged leader,” the TD Cowen analysts concluded.
FWA price cuts
Part of T-Mobile’s convergence strategy is in FWA, and this week it rolled out new FWA plans priced as low as $35/month compared to the previous low price point of $50/month. Included in the plans is a new tier called “Amplified Internet” for $60. Those plans are $15 cheaper for customers that have mobile service with T-Mobile, noted New Street Research analyst Jonathan Chaplin in a note for investors.
Previously, T-Mobile disclosed that 70% of its FWA customers were also T-Mobile mobile customers. “These plans should help shift the mix to bundled customers, where T-Mobile claims benefits in churn and CLTV,” he said.
It’s worth noting the date on the calendar. Offering attractive discounts helps when you need to make your fourth-quarter financial targets. “They just closed their November. They know where their numbers are,” noted Recon Analytics founder Roger Entner.