T-Mobile just warned Big Cable

Most major cable companies have some benefits. Because it is expensive to dig the ground and lay coax or fiber, there is usually only room for a limited number of cable companies in a given market. Sometimes there is only one.

Needless to say, this has allowed large broadband companies to enjoy steady growth and high profit margins in an environment of limited competition.

However, with the advent of 5G, could things change? 5G wireless leader T-Mobile United States (TMUS 4.85%) hope the answer is yes.

The latest non-carrier move: “Cheating” on your cable company

T-Mobile markets itself as the user-friendly and affordable alternative to the big phone companies, or the “non-carrier”. Over the years, T-Mobile has periodically introduced “non-carrier” moves, or consumer-friendly moves meant to undermine its biggest rivals. These include eliminating data caps including all taxes and fees in its advertised subscription price, eliminating high-speed roaming charges in international countries, allowing a unlimited streaming and payment of part of customers netflix subscriptions.

The latest non-carrier ruling was introduced yesterday and involved T-Mobile’s new 5G wireless broadband service. T-Mobile had already made good progress on wireless broadband, piloting the service in select markets in 2020, before rolling it out more widely in early 2021. Fast forward a year, and T-Mobile just hit 1 million customers on April 20.

Yesterday, however, T-Mobile announced a very aggressive promotion to energize this broadband growth.

The new offer

T-Mobile offers several perks to entice people to try 5G broadband. These include:

  • Try T-Mobile’s wireless broadband free for 15 days, while keeping your old provider.
  • If customers change and there are termination fees, T-Mobile will refund those fees up to $500.
  • Price lock: Customers get a $50 broadband connection, including taxes and fees, with no price increase as long as they keep the service.
  • With a Magenta Max family plan (T-Mobile’s premium wireless plan), T-Mobile will treat broadband like another line in the family and therefore only charge $30, down from $50 previously.
  • $50 off any streaming device, including Chromecast, Amazon FireTV, or Roku.
  • 50% off YouTube TV for a year if customers also have Magenta Max, in addition to existing “Netflix on Us” promotion, plus free Primordial+ for a year.
  • Business Internet for 100 gigabytes (GB) to 300 GB of data for $50 to $70 per month.

Wireless broadband previously existed in suburban and rural markets. However, this has traditionally been done through small independent service providers and via Wi-Fi radios, not a cellular signal. While midband 5G was just rolled out on a large scale last year by T-Mobile, this will be the first test of 5G technology to make a truly disruptive breakthrough in an established industry.

Image source: Getty Images.

What this could mean for T-Mobile

T-Mobile has set a goal of having 7-8 million wireless broadband customers by the end of 2025. At $50 a month for 8 million homes, that would bring in about $4.8 billion. service revenue per year. For context, T-Mobile made just over $58 billion in service revenue last year.

However, T-Mobile generally guides conservatively, and it may now see an opportunity to act more quickly. Since T-Mobile provides broadband from its mobile towers, it doesn’t have to spend money digging trenches to lay and maintain cable or fiber. Therefore, much of this potential broadband revenue could fall directly into the bottom line. That would make a bigger difference to basic adjusted earnings before interest, tax, depreciation and amortization (EBITDA), which totaled $23.6 billion in 2021.

Everything he’s fucked up to be?

Skeptics might call it a defensive game, as cable companies such as Comcast and charter also offer mobile plans, often at low prices when combined with their wireline broadband service. Cable is therefore targeting mobile phone revenues, while mobile companies are now beginning to roll out 5G broadband to challenge cable.

What will make the competitive difference? Value and customer service. Currently, Comcast and Charter use Verizon Communications than their mobile wholesale network. Verizon has a very fast millimeter wave spectrum in some markets, but millimeter waves don’t travel very far from towers. T-Mobile is two years ahead of Verizon in rolling out midband 5G, which has much greater reach.

That’s why I’d give T-Mobile the edge over the cable companies for now, although the competitive landscape is fluid. It also assumes that 5G broadband, which I haven’t tried, acts as a good enough replacement for coax and fiber wired solutions. However, given the recent growth to date in T-Mobile’s offering, this seems like at least a “good enough” solution for many parts of the country.

Either way, the potential rise of 5G broadband is an important development for telecom investors to watch in 2022.

Casey J. Nelson