T-Mobile (NASDAQ: TMUS) thinks it is “unstoppable.” Going by its 2Q21 performance, the company makes a strong case.
The company grew 2Q21 service revenues to $14.5 billion, up 10 percent from $13.2 billion in 2Q20, when it recorded its first full quarter performance after the merger with Sprint closed on April 1, 2020. At current run rates, TMUS could garner around $57 billion in full-year 2021 service revenues, a jump of 15 percent from just over $50 billion in 2020. Core Adjusted EBITDA for the quarter was $6.0 billion, up seven percent on a YoY basis.
Total postpaid and prepaid net customer additions in the quarter were nearly 1.4 million, compared to 1.3 million in 2Q20. With these additions, TMUS’s total retail customer base grew to 104.7 million from 98.3 million in 2Q20. That tally places the company in a solid second place ranking at the end of 2Q21, behind Verizon, which reported 121.3 million connections, and ahead of AT&T with 97.7 million.
Net additions came from a combination of taking some market share, converting a portion of prepaid customers to higher-rate postpaid services, and porting more Sprint customers onto the T-Mobile network. TMUS says that it has migrated one-third of Sprint’s customers to the T-Mobile network which now carries 80 percent of the Sprint customer traffic.
The real story is TMUS’ 5G network expansion and the integration of the Sprint network.
TMUS says its Extended Range 5G service that operates on low-band 600 MHz spectrum now covers 305 million people (POPs) across the U.S. Its Ultra Capacity 5G which utilizes TMUS’ vaunted mid-band 2.5 GHz acquired from Sprint and high-band millimeter wave frequencies covers 165 million POPs in major metropolitan areas.
The company expects Ultra Capacity 5G to cover 200 million POPs while increasing the usable bandwidth from 40 MHz to 100 MHz across that footprint by year-end 2021, with a goal of reaching 300 million POPs with 200 MHz bandwidth by the end of 2023.
TMUS is not shy about pointing out that its large mid-band national weighted spectrum depth of 292 MHz gives it a significant lead over both Verizon and AT&T. That total includes 265 MHz of 2.5 GHz and below, and 27 MHz of combined 3.7 GHz C-band and 3.5 GHz CBRS spectrum. On the same scale, Verizon has a total of 244 MHz of mid-band spectrum of which 174 MHz is in C-band/CBRS licenses while AT&T holds 171 MHz with 79 MHz in C-band/CBRS spectrum.
With TMUS’ 2.5 GHz coverage already being deployed and continuing to expand, both Verizon and AT&T will try to make up the difference with large scale C-band deployments starting with their A-block licenses when the top 46 markets are cleared at the end of 2021 and continuing through 2023 and beyond. TMUS acknowledges that it will deploy its own B- and C-block licenses starting in late 2023, once the rest of the C-band spectrum is fully cleared.
The combined T-Mobile-Sprint network encompassing 4G LTE and 5G sites has approximately 107,000 macro cell sites, and about 65,000 small cells and distributed antenna systems.
As it is installing both Extended Range 5G and Ultra Capacity 5G, the company is utilizing existing infrastructure assets wherever possible. In the process, TMUS engineers are finding that they do not need all of those sites to meet their coverage and capacity goals and are systematically decommissioning those sites that are redundant.
TMUS categorizes the associated cost savings of both new equipment installations and management of those sites as “merger synergies.” The company now expects 2021 merger synergies to be $2.9-3.2 billion, more than doubling the $1.3 billion reached in 2020, and up from its prior guidance of $2.8-$3.1 billion. These synergies include approximately $1.35-1.5 billion of sales, general, and administrative (SG&A) expense reductions along with $550-700 million of network synergies achieved through cost-of-service expense reductions.
To enable the network build out, the company reported 2Q21 capital expenditures of nearly $3.3 billion, up two percent sequentially from 1Q21 and up 45 percent YoY. TMUS raised its full year capex guidance to $12.0-12.3 billion from its previous level of $11.7-12.0 billion.
Note that through the first half of 2021, the company spent almost $6.5 billion or roughly 53 percent of the midpoint level of its full-year revised guidance. Capital intensity for 1H21 came in at 22 percent indicating a high level of network expansion.
With over half of the budget spent in 1H21, we might expect some moderation of its capex burn rate. Here’s where the merger synergies kick in. The company suggests that by rationalizing its network assets to meet its coverage and performance objectives, it will save around $1.0 billion in 2021 that it will not have to spend for new site builds.
By John Celentano, Inside Towers Business Editor