5G Factor: Q1 2024 Earnings Implications and Pay Phones, Episode 64

Hello and welcome everyone to the 5G Factor. I'm Ron Westfall, research director here at the Tuum Group, and I'm joined here today by my distinguished colleague, Olivier Blanchard, our research director focused on key areas such as devices and semiconductors, including 5G naturally. And today we'll be focusing on the major 5G ecosystem developments that have caught our eye, and that is really the recent telco developments that relate to the spate of recent Q1 2024 renan financial result announcements.

And so, Olivier, welcome back to the 5G Factor, and many thanks for joining today. How have you been bearing up between episodes there in South Carolina? You know, busy, busy, busy, uh, not so bad.

Here we're again. Exactly. Yes.

And with that, let's dive right in because yes, we have plenty on the plate here, and I think it's a good idea to start by looking at the big three US mobile operators and, uh, their Q1 2024 financial results collectively so we can, you know, compare and contrast them in one swoop. Now, T-Mobile reported its first quarter Q1 24 results raising its full year guidance and delivering breakthrough customer growth that related to a higher share of postpaid phone net additions year over year and matching its lowest ever Q1 postpaid phone churn. 3 billion to stockholders in the quarter.

T-Mobile called out surpassing 5 million high speed internet customers. 2 million specifically as evidence that it is executing its growth strategy by beating the competition across some major comparison areas. Now, Mike Seaver, T-Mobile CEO, emphasized that T-Mobile excelled again in the service revenues and profitability categories as the rest of the wireless realm saw moderated customer growth.

So that's important to keep in mind because in, in addition to having, you know, these impressive financial outcomes, it also quite simply grew in terms of customer counts relative to the rest of the industry. Now that provided the warrant for providing a upgrade and its guidance for 2024. 9 billion.

Now, let's keep that in mind because next, let's look at Verizon, which also reported its Q1, 2024 operating revenue of $33 billion. 2% from Q1 2023. 3 increase year over year.

Now, Verizon chairman and CEO Hans Vestberg spotlighted that the company is on track to meet its financial guidance and to deliver positive consumer postpaid phone net ads for the year. Also, its fixed wireless subscriber base is continuing to grow substantially. 72%.

3% year over year and 252,000 at T fiber net ads, which is remarkably the 17th consecutive quarter of 200,000 plus net ads. Now, tying this all together, John Stankey, the at TCEO stress that the Q1 24 results reflect continued strong growth in the company's mobility and consumer wireline connectivity businesses, which represented about 80% of its overall revenues. Now at and t achieves an ultra robust first quarter post paid phone churn count, which grew alongside consumer broadband subscribers for the third consecutive quarter, and also expanded margins and its mobility and consumer wireline units.

Also, at and t is delivering on the its commitment to grow and improve the quality and cadence of free cash flow, which increased by more than $2 billion year over year. Now, this consistent, solid performance driven by its investment led strategy gives at and t now the confidence to reaffirm full year consolidated financial guidance. And so what we're seeing here is a whole lot of guidance fulfillment going on, certainly across the big three in terms of the Q1 2024 results.

And with that basically setting up, you know, the question to you Olivier, what are you discerning from, you know, the fact that the big three US mobile operators are showing pretty good financials and that they're all pretty much, uh, spotlighting the fact that financial guidance fulfillment is something that they are confident about. Well, I guess that the main thing is it's, it's good to be a, a large mobile operator in in the US right now. Um, what it also suggests to me at least, um, is that okay, the, the slump is over, right?

So, uh, right, but what I'm, I'm a little bit curious about. So I actually, I don't have answers for you, I have questions for you. Um, what, so first of all, what do you attribute this to, uh, trend-wise?

Um, and two, how do you connect the sort of like, um, trends in hardware adoption? So people updating their phones or upgrading their phones, uh, versus just buying more services or buying into more of these services and the, and content offerings. How do you, how do you make sense of it?

Uh, it's, uh, those are excellent, uh, questions. And I'll start, I guess, you know, with the, the trend aspect, you know, why, or at least these three operators, you know, showing these types of results. And I think it's, it's a combination of factors.

I think, uh, first of all, there's the macroeconomic picture, and while it's not say robust as many would like, it certainly is aligning with enabling, uh, certainly the operators to, you know, avoid those types of factors interfering with their ability to basically, you know, improve, uh, their financial, uh, situation. And so that means that inflation, while it could be lower, is not disruptive. That means the geopolitical considerations and other factors.

Uh, certainly, you know, covid itself as we know, proved to be, you know, huge difference makers in terms of, you know, the financials. And so, yes, uh, this is not unique to the operators. Uh, we go through, you know, ups and downs and, uh, obviously post covid, there was a down cycle.

And I think that, uh, is, you know, looking at the macro factors. Now, what I think is also important here, which is tied into your second question, is, you know, what are the operators doing specifically that, uh, can, you know, attribute, you know, this consistent across the board, you know, confidence and guidance, fulfillment, and, you know, the other, you know, metrics such as improvement in financials, improvement in subscriber accounts and so forth. And I think, uh, what we're seeing is that they have dialed back their capital expenditure notably over the last few quarters.

And so that's giving them a pause to say, all right, we've made a lot of investments, uh, certainly in 5G equipment, 5G infrastructure, but also, you know, in related areas such as, you know, fiber, uh, connectivity build. And that is gonna vary now specifically from operator to operator, you know, the actual percentages. But I think what it's underlying is the fact that, uh, the operators are now able to focus more on, okay, how can we improve the experience for our customers?

That is, uh, for example, using 5G non and standalone, uh, and transitioning that to 5G standalone, uh, for example, that's T-Mobile, I think is a prime example here. But also, you know, uh, taking advantage of things like, you know, the bead act and other, you know, acts, uh, in, uh, the US that are funding, uh, fiber builds. And this is something that is kind of a rising tide aspect.

So we're looking at it as a combination of yes, uh, there's a 5G dimension, certainly important, but also that's linked to fiber builds, which can augment, uh, a 5G uh, service. As we know, fiber backhaul is basically integral to, you know, a five, uh, G capabilities. But also I, I think it's not great news for, you know, the suppliers, because as we know with the, the operators, at least in the us, you know, taking, um, this, you know, pause and CapEx expansion, it's, uh, allowing them to at least, uh, present better financials, but not so much, uh, good news for some of their key suppliers who are having to, you know, basically weather through this, uh, drought of sorts from their perspective.

So I think that, you know, are some of the key, you know, uh, inputs as to, you know, why we're seeing this consistency and, you know, for, you know, the devices, you know, uh, Olivia, what are you seeing in terms of, you know, how this is adding into the mix here, uh, when it comes to at least, you know, us uh, consumer behavior and business behavior, Right? So it's, there's, there's, there's gonna be a bit of a reset with, uh, with the hardware piece. Um, I think it's already starting to start, so we're starting to see the wheels turning a little bit, but it's, it's gonna go into full swing sometime towards the end of the year, uh, and into next year with, uh, with hardware.

So that's gonna be phones, it's also gonna be PCs, uh, tablets. I'm not exactly sure how they're gonna be impacted yet, but, and it's, it's all about the on-device ai, which we've talked about, uh, quite a bit. And, and not just because of the AI capabilities, but just because of the performance improvements of, uh, of the chips that are going into these devices.

So the, the, the chips that enable, well, the systems essentially, that enable them to perform, uh, very complex and, uh, uh, generally expensive, thermally expensive, um, uh, AI processes or workloads also enable these, uh, these devices and these systems that, that power them to, uh, to, to handle multiple workloads, uh, and also really be really good for gaming and streaming. So I think there's, there's, there might be more demand even for bandwidth, uh, for at least or for faster connections. And so, you know, part of that is interesting.

Part of that is obviously served by 5G, uh, part of that is gonna be served by wifi seven. Um, and so somewhere in the middle you have this fixed wireless access play that I'm really still curious about. Um, and I'm, you know, you're talking about fiber builds and basically it's, it's wireless fiber, right?

Or at least that's what it tries to be. And so, um, so I'm, I'm curious also what what that looks like, um, because I think it's, it's an essential part of, uh, this complete breakfast of, uh, of, you know, 5G adoption and more importantly, the, the use cases that, um, that we're seeing in terms of, of connectivity of screen use, um, and of expectations from companies and from consumers as to, you know, kind of like the, the speed of the connection, the quality of the connection, the amount of data that can be transferred to the connection, um, to be able to, to kind of, you know, get the most out of the experiences that these devices that are very advanced and capable of, of running, um, very complex operations can, uh, can deliver. And so there's, there's always a sort of tug of war between, you know, the, the conductivity and the, the data piece and what the devices can do.

And, uh, much of the time it's, it's the access point that's, uh, that's gonna be the issue. Whether it's fixed wireless access or really strong broadband, like really good 5G in a neighborhood, um, or, you know, fiber that goes into a, into a router. Um, and, and evidently what I'm hearing from, from the numbers that, um, that you outlined that you highlighted is that there's the demand for services, the demand for content, uh, demand for data is increasing.

And, uh, so yeah, there's plenty of ways to monetize that if you can, if you can be the best one to deliver it. Well, those are all salient points. And yeah, I think you had an excellent call out there, Olivier, on, you know, the device, it can only perform as good as the network that's on, right?

I think that's common sense. And so I think, uh, at an aggregate level, uh, we're seeing improvement in, uh, network, uh, capabilities. So that's a tribute really to, you know, the hard work that the operators are putting in here.

I know that they could compare to the airlines and that, you know, to this day, they do, uh, get, you know, a fair amount of blowback on, you know, say customer feedback. However, uh, we know that compared to say, previous eras, uh, this is, uh, a much different ballgame now. Uh, but it's good news really for the overall ecosystem.

And I think, uh, the one area of that is worth a shout out is on fixed wireless access. You know, what is, you know, like the ceiling here, there is, you know, a physical ceiling. However, uh, the indications are that's, uh, we're not near, you know, say the potential limitations as we understand them today in terms of, you know, being able to grow fixed wireless access, at least in the US and, you know, continue to, you know, make it a, a viable monetization of, you know, the 5G network.

And tied to that, I think are important, uh, aspects. And I, I know, like during the T-Mobile call, uh, Mike Siever took pings to point out that, uh, they are certainly keen on fixed wireless access as their overall, uh, proposition. And, uh, that is, uh, being also looked at a different light, if you will, because, uh, T-Mobile now has T-Mobile fiber and has just entered into a JV with EQT to acquire lumos and its fiber assets to deliver, you know, fiber services in the Mid-Atlantic region.

Now, this is something that in itself is, uh, good news because it's, you know, stirring up competition, uh, you know, with, you know, the offerings from, you know, the Verizons, the at and ts, uh, also, uh, you know, uh, the charter slash spectrums of the world, but I think it's also, uh, representative of the fact that it's really targeting those, uh, reside residencies or neighborhoods that don't really have fiber, or at least, uh, not yet. And so this is something that I think, uh, is, uh, smart on T-Mobile's part because they're avoiding, you know, some of the steepest challenges of just doing a, you know, fiber build, uh, from scratch, if you will. And so they're, if you will, avoiding, you know, some of the immense headaches that come with, you know, uh, say greenfield fiber builds of, say, an entire network.

And that is linking though back to FWA and the observation is that, uh, yes, Verizon and, uh, T-Mobile or, you know, the two pacesetters in the segment, and, you know, uh, clearly, you know, uh, Verizon sheds, uh, additional light on that, but also at t uh, is making dramatic inroads in this, uh, segment. And I think, uh, there are, you know, a couple key reasons. Uh, first of all, FWA is integral to addressing digital divide in terms of, you know, a overall societal objective.

Quite simply as attractive as fiber can be, there's just sometimes not a business case for getting it out to, you know, harder to reach, uh, places. Also, uh, in terms of, you know, why, uh, fixed, uh, wireless access, what we're seeing is that the business community, uh, views it as a vital way to access remote locations and thus help streamline, say, their SD wan, uh, solutions. And also just having, you know, overall, uh, ability akin to the digital divide to align, you know, their overall policies to, you know, quite simply have a way to not only connect the remote locations, but to do it in a smart, uh, way.

And, uh, that's another aspect about putting up those, uh, FWA access points, if you will, is not too time consuming. Hopefully, the line of sight is not going to be an issue in the deployment, and if that isn't, then you know, you're up and running in a pretty rapid, uh, fashion, say in relation to a fiber build itself. Now, we could talk the entire episode just about, you know, the big three.

However, I think, uh, it will also be insightful to jump across the pond and see what is going on with, uh, BET. And as we saw that, they formed a new partnership with the Media and Entertainment Group global, and this is coming a year since bts former enterprise and Global Divisions came together to create one B2B unit that's connecting customers in the uk but also internationally. And so this is, I, what I think is interesting that as a group of standalone businesses that can consume BTS core assets and serve diverse industries, it's UK portfolio businesses, I believe, are integral to the fact that, uh, the media and bras, uh, cast services that focus much of the UK's digital content can now be more streamlined and linkage to the company's, uh, directories.

And also, you know, the businesses that underpinned its critical 9, 9, 9 service, you know, equivalent to 9 1 1 and credit reference agencies. Now, why is BT making this move? Well, it's actually from lo and behold, customer feedback input.

Now, it's touched on it earlier. You know, what about, you know, the perception that operators aren't responsive to customers? And I think this has helped changing that.

First of all, the, these are based on letters from children about why, you know, BT was still distributing millions of printed phone books every year, and also inquiries from customers and stakeholders about the payphone, which, uh, basically are a standout, at least from my perspective, whenever I visited London, there are always things that always leap out at you. For example, the cabs, uh, the pubs, but also the payphones, the fact that they were so well maintained and, you know, quite simply aesthetically pleasing. And so that, I think was the contrast to say the state of the US payphones, many of which were quite simply torn down or, you know, um, moved on, uh, to, uh, having another application put into, for example, Y fi hub.

So what now BT is doing is that with global, they'll continue to market and sell advertising on BTS 1000 plus existing street hubs as they're called out and upgrade them as they evolve. So stay tuned. I think this is a, certainly a worthwhile endeavor.

And also they're gonna convert up to 2000 conventional BT payphones and kiosks into brand new street hubs. So this is coming together. They're taking the new, uh, purpose-built street hubs, and really combining them with the legacy payphones to make for a more agile network, uh, that could be be more responsive to customer needs, whether it's, you know, consumers or for that matter of businesses.

And so, uh, with this, you know, change of, uh, perspective, uh, Olivier, what are you seeing about this BT move that, you know, strikes you? No, I think it's interesting, especially in the, in the UK with the, uh, the iconic, you know, red, um, you know, telephone booths and right. It's, it's been interesting.

Like I, I, you know, I'm old enough to remember phone booths and, and phone cards even. And so when I was in the, uh, the French military, my, uh, my fiance at the time in the US and I can, we, there's no internet yet. Uh, so the only way that we could stay in contact with each other was, you know, public phones and cards, by the cards, by the credits, slide the card in, uh, just like an ATM and, and that was it.

Um, which wasn't super comfortable. Obviously now we have smartphones and broadband and, and internet and a lot of different ways of, of staying in touch with each other. Um, but there is this infrastructure, right?

And, and every time I run into a phone booth now on, on the side of a gas station, uh, or something, it's abandoned. It's just, its like a relic and I love taking pictures of 'em, but yet you have all this infrastructure in place, and you have some of these landmarks and sort of cultural, iconic, um, you know, little, little, uh, artifacts, um, in, in place. And I, I feel like it's, it's a, it's a great idea to retask them.

And I think in some ways it plays into this sort of not recycling necessarily, uh, you know, sort of like ESG trend of just retasking an item or a technology or materials so that you extend their life or, or give them a second life, um, and, and more utilities. So, um, I think it's smart. I think it's clever.

I think it's interesting. And also it's, um, it's a good play for British Telecom, uh, or BT because, um, it's, it, it's a good, it's a good way to get their name out and have analysts like us and journalists talking about them. So, uh, right on kudos to them for that.

Yeah. Yeah. And in fact, that was a, a very instructive point you made Olivier, uh, for example, BT and Global can pretty much, uh, serve as a, an exemplar of sorts, if you will, in terms of how, you know, legacy payphones can be converted to something that is still very much a part of the connectivity fabric.

Uh, you know, certainly the wifi aspect works if the phone booth has the location, but I think, uh, that was, uh, a very good point about it can in essence, uh, lend more credence to a operator's sustainability credentials, you know, quite simply, you know, finding a more creative way to, uh, take circularity up to the next level. And, uh, so yeah, I mean, these, a abandoned phone booths, uh, need some TLC quite simply. Yeah, they do.

And, and here's I think something that I can point out as to, you know, lessons that can be learned and then, you know, emulated, uh, here in the US and, uh, and other places naturally. Again, you know, the, uh, uh, the BT service is clearly international, and I like that trip down memory lane, continuing that, you know, fine service, uh, while, uh, you served in the French military. Good.

Yeah, long, long time ago, clearly by the story I just told. Well, that I think, um, is, uh, a good segue into, you know, what about, you know, other operators out there, what about the competitive, you know, landscape here? And so this is an opportunity to delve into charter communications.

You guessed it, Q1 2024 results. And this is in the spirit, again, of intermodal competition. Uh, certainly, uh, they have an eye on the telcos, but you know, there's some coopetition naturally, but there's still, you know, when it comes to, you know, reaching, you know, businesses and certainly consumers, this, uh, competition between them.

And I think that's well understood. 2% year over year. 9%.

So clearly, uh, charter is upping its game when it comes to using mobile service to quite simply bring on new customers to be a competitive alternative to, you know, existing, uh, service plans out there. And also, again, uh, reinforcing its ability to bundle, if you will, certainly when it comes to, say, cable modem customers as well as, you know, other, uh, services they that they can offer. And also, this is tied to the fact that the first quarter total residential and small medium business mobile lines increased by 486,000, and that was as of March 31st, uh, 2024.

3 million mobile lines as a result. So that leads out, you know, that shows that, you know, charter again, is raising the table stakes and the level set in terms of choice here in the us plus also as at the end of March, uh, charter has a total of 32 million residential and SMB customer relationships, and that is excluding the mobile only relationship. So technically that number is even higher, but it's showing, you know, that they're executing on their strategy, that they're keeping a close eye on how to use mobile to quite simply make themselves more attractive.

Now, importantly, charter is on plan to evolve its network at a lower cost, uh, than what it is asserting is the competition to offer both symmetrical and multi gigabit speeds across its entire footprint. So stay tuned. I think we're gonna hear more about this and, uh, say the coming week, and I think that will be a key takeaway as to how Charter is quite simply doing this.

Now, Charter's advanced wifi, and, uh, you hit a, a excellent point there. Olier, in terms of mentioning, you know, wifi as part of this all overall connectivity mix, uh, is a managed wifi service that provides customers an optimized home network. At least that's how they're positioning, while providing greater control of their connected devices with enhanced Secur security and naturally privacy.

And so with that, you know, uh, what's your viewpoint on, you know, what's going on with Charter and for that matter, you know, the cable service offerings out there, Olivier Mm-Hmm. Well, um, I'm a customer, Right? That does it all.

And, Um, Yeah, and I'll, I'll tell you, there's, you know, a, aside from everything that, that you just mentioned, I've noticed that service quality has gone up and it's, you know, it's always been kinda like a joke and, uh, especially for consumers, I think more, more so perhaps than for, uh, for other kinds of, of customers. Um, but it's always been kind of a joke of how bad charter was, and really, like everybody hates their, their cable provider anyway. Um, but I've noticed an improvement.

I've impro noticed an improvement in the service. Um, outages are not as frequent as they used to be, and when they do come, they're fixed much faster. Um, even going to their locations to pick up equipment, whatever.

Uh, I moved recently, so I had to do all that was much simpler, easier, more, um, I don't know, it was just more pleasant. It was, it was less friction. Mm-Hmm, right.

And so I'm, I'm assuming that that helps them, uh, especially through word of mouth with other customers, like, Hey, you know, this, it's, it's okay to, to to do business with them now. Um, it's much more reliable, much more pleasant. It's, uh, less, fewer problems.

But I think also, I mean, I'm, I'm looking at the streaming wars and the amount of bandwidth again, which is I think reflected by the numbers that we talked about at the beginning of the show, uh, with, uh, with the big three, um, operators that we we're, we don't need less bandwidth. We need more bandwidth. Um, and whether you have, you know, Netflix, Amazon, Hulu, max, whatever it is, plus gaming, plus, uh, people working from home, uh, whether it's all the time or just a few days outta the week, zoom calls, um, you need that reliable service.

And, uh, and I think charters, you know, it has name recognition, they have the infrastructure, they have the locations, they know what they're doing. And so I'm, I'm not surprised, uh, that they're seeing, uh, you know, positive, uh, trending in their numbers. Like, I mean, all it's, it's kinda like a perfect storm of success.

Um, no, seriously, it's like, I mean, you, I, I agree. That's why I thought it was a great description, you know? Yeah.

If, uh, if love Average movie, If if they somehow failed to grow in this environment mm-Hmm. Uh, there would be, yeah, they, they, I'd be asking them questions like, why, how, how are you not taking advantage of this? So this doesn't surprise me at all.

Right? And it's just, you know, they're, they're executing well, so good for them. Yeah.

And I think, uh, you hit the nail on the head with, you know, the streaming wars, if you will. Uh, this is certainly a major part of, you know, what's going on with, uh, operator strategy. Certainly, uh, when it comes to the cable operators, as we know, there's no let up in terms of, you know, cord cutting quite simply, more people on the consumer side certainly are basically saying, I am not interested in the traditional cable pay TV package.

I would rather do some combination of streaming services. Now, you know, the operators can play a role in that, and we're seeing that also on the, say, the mobile service side, but also, and, you know, overall bundled, uh, packages. So it behooves, uh, certainly the cable operators, and they've been pretty clear about this in terms of, you know, what they're saying, uh, in terms of, you know, their strategy, but also, you know, conversations, uh, with them that they view high speed internet as really, you know, the, the crown jewel moving forward because of, you know, what's going on with cord cutting.

And also being able to quite simply improve their ability to address the business market, whether it's small to medium businesses or, you know, plus. And, uh, so as a result, yes, uh, it is kind of lending itself to, you know, enabling them to come up with a, a better experience, both in terms of, you know, the service itself, but also, uh, customer support and so forth, taking advantage. And you pointed it out of, you know, AI capabilities, you know, we're seeing the operators tipping their toes in and discovering that actually ai gen AI specifically can be very helpful with, uh, say customer support in terms of using natural language processing to better respond to the customer's needs.

Having that built in as already showing metrics of, you know, improved, uh, response times, uh, improved, uh, customer experience scores and so forth. And it doesn't stop there. It's also, uh, BT is a good example that, uh, for example, they're working with Amazon's Code whisperer capabilities, uh, again, a, a gen AI technology to streamline, uh, their, uh, ability to code.

And they've already have reported, you know, tangible progress in that regard. And so, yeah, this is all coming together like, you know, the AI capabilities, uh, can certainly help the operators, let alone, you know, any large organization out there to quite simply improve, uh, not only the customer experience, but also their workforce experience. And that's translating into, you know, some of the, uh, main points that we've touched on right here.

And so on that relatively positive note, thank you again, Olivier, for coming on board and talking about, you know, the matters related to 5G, not exclusively 5G. Uh, certainly appreciate, uh, doing that today. Sure.

It's always, uh, a pleasure and a privilege to be on the show. Right on. Thank you.

And naturally, there'll be more coming down the pike here in certainly the month of May, but also throughout Q2 and the rest of 2024 and beyond. And so with that anticipation built in, I wanna thank our viewing audience for once again, uh, coming on board and listening to us, watching us. And also don't forget to reserve, uh, forget to reserve our, uh, bookmark and go ahead and know that we basically are coming out, uh, with a cadence of, uh, once a week.

And with that, thank you again everybody and have a great 5G and also wifi and also fiber day, everyone.