Personal Finance
S

Will T-Mobile Dominate Subscriber Growth Once Again in 2018?

T-Mobile store in Times Square

T-Mobile once again found itself taking the lion's share of the most valuable customers in wireless -- postpaid phone subscribers -- in 2017. By its count, the Un-carrier took 80% of all postpaid phone subscriber growth across the industry. That's actually down from over 100% of growth in 2015 and 2016. In the fourth quarter, T-Mobile took just 50% of all postpaid phone subscriber growth across the industry.

The introduction of unlimited plans from Verizon Communications and AT&T , as well as continued aggressive competition from Sprint , combined with a pullback of promotional activity by T-Mobile as it focuses on growing free cash flow, has resulted in declining market share gains.

So, can investors expect T-Mobile to keep up the pace in 2018, or will growth slow?

T-Mobile store in Times Square

Image source: T-Mobile.

A disappointing outlook

With its fourth-quarter earnings release, management provided an outlook of just 2 million to 3 million postpaid net additions for the year. That compares to total postpaid additions of 3.6 million in 2017. (Note: That's total postpaid subscribers, not just postpaid phone subscribers.)

That said, management consistently provides very conservative guidance, and it made sure to note as much on its earnings call with analysts following the release. Still, it's a pretty significant decrease from management's guidance last year of 2.4 million to 3.4 million net adds.

But T-Mobile seems like it will be considerably less aggressive in 2018 than in prior years. T-Mobile wants to balance its growth with profitability, which means it will be less promotional going forward. Countering that, the company is showing its strongest customer retention rates thanks to its improved service and value over the years.

Competitors getting more aggressive

While T-Mobile takes its foot off the gas with its promotions, its competitors aren't backing off. AT&T, in particular, is bundling additional services with wireless. Unlimited subscribers all get free HBO, and they can take $15 off a DIRECTV service. On its earnings call, management says it will pursue more avenues to create bundles in 2018. Sprint has followed suit by bundling Hulu. In fact, Verizon is the only major carrier without a bundle . Its unlimited plan is priced competitively, but it's still at the top of the market.

Last quarter saw all four major carriers add postpaid phone subscribers, something of an anomaly in recent history.

Carrier Q4 2017 Postpaid Phone Net Additions
AT&T (NYSE: T) 329,000
Sprint (NYSE: S) 184,00
T-Mobile (NASDAQ: TMUS) 891,000
Verizon (NYSE: VZ) 431,000

Data source: Company financial releases.

The biggest driver of customer additions across the board is record-low churn rates across the industry. T-Mobile has relied on winning customers from competitors in order to grow subscribers. While porting ratios remain high, there are fewer customers changing carriers. And with the phone market growing increasingly saturated, there aren't many other sources for customer growth for T-Mobile.

So, can T-Mobile keep it up?

T-Mobile should be able to lead the market in total net additions once again in 2018, but it's unclear if it will continue its dominance. It's much more likely its share of net additions looks a lot more like the fourth quarter going forward as competition becomes more aggressive and churn continues to fall across the industry.

That said, T-Mobile should continue on its path to producing free cash flow and EBITDA growth that far exceeds the rest of the industry even as the competition eats into its growth in subscribers.

10 stocks we like better than T-Mobile US

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and T-Mobile US wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 5, 2018

Adam Levy owns shares of Verizon Communications. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

S TMUS T VZ

Other Topics

Stocks

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More