There’s typically a pretty simple trade-off for wireless carriers between growth and profits. Cutting prices or offering enticing promotional deals bring in more new customers, but hurt profits. Keep prices steady or increase them and profits gain, but more customers may defect.
The usual pattern was quite obvious in the fourth quarter results at Verizon, which chose to attract more customers but sacrifice some profits. But it was surprisingly missing from T-Mobile’s financials, as the third-ranked carrier appeared to pull off the rare trick of attracting more new customers without cutting into its profitability.
On Thursday, T-Mobile said it had added 1 million regular monthly phone customers in the fourth quarter, the same gain as a year ago and more than Verizon, AT&T, and Sprint combined. At the same time, T-Mobile increased revenue 4% to $11.9 billion, while net income surged 17% to $751 million.
“We’ve had a long history of understanding promotions and learning what it takes to win real customers that stick with you,” T-Mobile president and chief operating officer Mike Sievert told Fortune. The former Microsoft and AT&T marketing exec who joined T-Mobile in 2013 will take over as CEO from John Legere, who is retiring, on May 1.
AT&T and Verizon both cut monthly prices on some of their unlimited data plans in the second half of 2019, while T-Mobile kept its already lower priced plans in place. Verizon was also aggressive in offering “buy one, get one free” phone offers to entice switchers, while T-Mobile focused more on trade-in offers that don’t generate as many new lines but, perhaps, bring customers more likely to stick around for a while.
T-Mobile will continue tweaking its offers to stay competitive, not just with its larger wireless rivals, but also with new cable players Comcast, Altice, and Charter, says T-Mobile chief marketing officer Matt Staneff. “It just kind of depends on what the industry throws at us and what’s going on in the marketplace,” Staneff says. “We’ll continue to adjust our playbook to take advantage of that.”
The carrier is planning on expanding its faster 5G network this year. It already covers an area where 200 million people live, far more than rivals, but at speeds that aren’t much faster than its current 4G LTE network. This year, expect a lot more 5G gear in the field and new phones with better capabilities, says chief technology officer Neville Ray.
“When mainstream mega-brand phones support 5G as the default and not as just an option, then adoption will go through the roof,” Ray says. “And that’s something that we expect to be seeing starting pretty early on this year.”
T-Mobile’s stock price, which has been the best performer in wireless this year, gained 3% to almost $85 in midday trading on Friday, almost hitting its all-time high. So far in 2020, T-Mobile’s share price is up 8% versus a 2% drop for Verizon, 1% decline for AT&T, and 5% decline by Sprint.
A federal judge in New York is currently weighing whether to allow T-Mobile’s $26.5 billion merger with Sprint to go forward. Both the Justice Department and Federal Communications Commission signed off on the deal, but about a dozen state attorneys general sued, arguing that the combination would reduce competition and lead to higher prices.
Sievert said he and other executives remain optimistic that the judge will approve the merger, but all he can do now is wait.
“If I told you it was easy waiting to know which future is in front of us, I’d be lying,” he says.
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