Is T-Mobile a good stock to buy now?
T-Mobile, a Leader in 5G and Wireless Services
Telecom’s Rapid Growth
Since Steve Jobs introduced the iPhone in 2007, smartphones have taken the world by storm, and the telecommunications industry has evolved and grown aggressively. Verizon (NYSE: VZ), T-Mobile (NASDAQ: TMUS), and AT&T (NYSE: T) are the largest wireless providers in the United States, currently holding 470 million wireless subscriptions in the U.S., doubling from what it was in 2007.
Needless to say, investors who caught up with the smartphone revolution have been rewarded handsomely. So, what will be the next disruption in the telecommunication industry? 5G.
What is 5G?
5G is the latest updated broadband cellular network, as it was deployed in 2019 and runs on smartphones produced after then. 5G contrasts previous generations of cellular technology in its millimeter waves, each having smaller ranges than those of 4G but are able to transmit data faster. In other words, 5G provides faster speeds and lower latency, which comes at a higher cost per square footage of coverage. Furthermore, in July 2016, the FCC imposed rules regarding the usage of 5G, making the United States the first country to open a high-band spectrum for the new technology.
In addition to the United States, South Korea and China are leading the pack in 5G development. With more than 50 cities in both countries providing 5G services as of January 2020. Previously, China experienced a slow rollout of 4G technology. As its major wireless carriers, China Mobile, China Telecom, and China Unicom, hesitated in their supply. The 5G rollout is expected to be much more efficient, with the Mobile Communications (GSMA). Seeking to have 460 million 5G connections by 2025.
T-Mobile and Sprint Merger
In 2018, T-Mobile announced a merger with Sprint for $26 billion. And after a 2-year approval process, the merger finally closed on April 1, 2020. Sprint was discontinued on August 2, 2020 and the resulting company remained with the name T-Mobile. . Former FCC Chairman Ajit Pai voiced his support for the merger: “the company [Sprint] standing alone cannot deploy 5G in this spectrum throughout large parts of rural America” and claimed that the merger would deploy mid-band 5G to about 88 percent of the US population, including most rural customers.
However, the merger also faced opposition and lawsuits from state AGs. In 2018, the Communication Workers of America (CWA). A union representing about 700,000 workers. Claimed that the merger would result in more than 28,000 jobs lost. Regarding legal challenges, New York, California, and Washington D.C became part of a lawsuit to block the merger. Alleging that the merger would result in higher prices for consumers in the range of $4.5 billion per year.
T-Mobile’s Performance and Growth
T-Mobile’s net income has fallen about $40 million from December 2020 to 2021. And likely attributed to merger cost and increased supply chain prices due to COVID-19. However, the wireless provider’s earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by $3 billion during the same period. EBITDA, an important metric used in the telecom industry, as it measures the company’s investment into network equipment, cell towers, fiber-optic cables, and other infrastructure.
Thus, the large amount of fixed assets leads to high depreciation expenses and the need to continuously invest in machinery. In Q1 2022, T-Mobile posted outstanding financial results, including a 26% YoY increase in free cash flow and a 6% increase in YoY cash purchases of PP&E. T-Mobile maintains a competitive edge in the telecom industry and has blown Verizon and AT&T out of the water in 5G coverage and speeds.
According to PCMag, T-Mobile has higher maximum and average download and upload speeds than its competitors and was the only primary carrier that increased its average download speed. At the same time, those of Verizon and AT&T decreased. Regarding 5G, T-Mobile boasts a coverage double that of AT&T and nearly quintuple that of Verizon, indicating a clear leader in the future of wireless providers. While AT&T was the leader in the 3G and 4G era and Verizon dominated 4G LTE. Moreover, it’s time for T-Mobile to be in the spotlight, and it will likely continue to lead the charge into 5G soon.
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Written by Martin Min & Edited by Lauren Kauppila
Sources:
FCC
T-Mobile Financial Statements
https://www.pcmag.com/news/fastest-mobile-networks-2021
