T-Mobile USA (TMUS 0.43%) More Americans are covered by 5G than its competitors, and the next phase of 5G could be even more important.
Un-carrier says its 5G Ultra Capacity network now covers 260 million people. It is now quickly using its spectrum licenses to increase its capacity and using new technologies to increase the speed of its network.
AT&T and Verizon Communications will compete with better coverage, more accessible and faster networks. This bodes well for T-Mobile investors, as the company should increase its ability to attract new subscribers.
Premium coverage from T-Mobile
With better 5G coverage, T-Mobile can attract customers in new markets. In fact, T-Mobile hit its year-end goal of reaching more than 260 million subscribers. Verizon also met its target of 175 million subscribers, while AT&T has yet to officially hit its target of 130 million subscribers.
On closer inspection, the difference between Verizon’s 175 million to T-Mobile’s 260 million is much larger than it seems. It took T-Mobile a year and a half to go from 165 million to its current coverage.
This lead allows T-Mobile to more effectively market its service to rural markets that have been ceded to Verizon and AT&T. But with better coverage in these markets, it starts to drive customers away from the competition. T-Mobile’s home Internet offering could be especially helpful for customers moving into rural markets where broadband access is limited.
Better speed and availability
Connecting to a 5G network is one thing, but coverage doesn’t matter if the network is congested or the top speed isn’t great. In this regard, T-Mobile is deploying a huge amount of spectrum on its 5G network.
First, it is using its legacy PCS spectrum in the 1900 MHz band to accommodate another layer of 5G network coverage. This band is expected to be significantly improved by carrier aggregation with the 2500 MHz bands. The effect is a wider data channel, allowing speeds of up to 3 Gbps in T-Mobile’s tests. Carrier integration is currently only available on select devices, but T-Mobile plans to make it available on other devices in the future.
Verizon says customers can get up to 4 Gbps in some areas by using the millimeter wave (mmWave) network. Millimeter waves are only useful in some areas because the wavelengths can only travel short distances. T-Mobile plans to use mmWave in places like stadiums in the future.
T-Mobile also has a new batch of 2,500 MHz spectrum licenses available after the Federal Communications Commission auction earlier this year. Moreover, few competitors were able to grab these licenses at relatively low prices. Both Verizon and AT&T have focused on higher frequency bands and have invested heavily in acquiring and clearing the licenses needed to build their networks.
T-Mobile’s spectrum position is enviable, allowing it to rapidly increase the capacity and speed consumers expect from next-generation wireless networks.
Change the minds of customers
T-Mobile’s network advantage is well known to those who follow the industry, but consumer opinion has yet to change from Verizon’s dominance in the 4G era.
Verizon has maintained its marketing message around the strength of its network. It still uses the “America’s Most Trusted Network” claim in its marketing, but that claim has come under fire.
At the same time, T-Mobile is doing well to change the perception of consumers. “Over the last three years, we’ve chipped away at Verizon’s network leadership,” T-Mobile CEO Mike Sievert said at an investor conference earlier this month. “We cut Verizon’s lead in half.”
So there is still work to be done. The more T-Mobile extends its real-world lead in 5G, the more likely it is that consumer perceptions will match reality. This could result in more shifts to T-Mobile in the future and steady subscriber growth.
The company should also see an increase in free cash flow as it leverages its footprint and network assets. This gives it ample room to reinvest in its network, increase its competitive edge, and buy back shares, which should support the current share price. Look for stocks to outperform their peers in 2023.
Adam Levy has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
