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Workers rebuild a cell tower with 5G equipment for the Verizon network.
George Frey / Getty Images
Investors had to spend a combined eight hours listening to telecommunications executives last week, with consecutive investor days starting from
Verizon Communications,
T-Mobile US,
and
ATT
from Wednesday to Friday. Management teams outlined their plans for newly acquired wireless spectrum licenses and announced their strategies for the 5G era.
The low shares of AT&T (ticker: T) were those that gained the most on the investor’s day, but for reasons unrelated to its main wireless business.
Verizon
(VZ) and
Mobile tee
(TMUS), meanwhile, both remained with their tested and proven messages: “Network, network, network” for Verizon and “Leaving competitors in the dust” for T-Mobile.
Verizon spent the most on the recently completed C band auction, having committed a whopping $ 53 billion for spectrum licenses and associated compensation costs. Management made it the centerpiece of their pitch on Wednesday night. It expects to invest $ 10 billion to upgrade its network equipment to address this spectrum – in addition to an existing annual capital expenditure budget of around $ 18 billion.
Verizon sees its investments in 5G paying off in a few years. She said she expects to increase her service revenues by at least 2% in 2021, at least 3% in 2022 and 2023 and at least 4% in 2024 and beyond.
It’s not much, but it’s a decent clip for Verizon. In a saturated wireless market in the United States, management is focused on moving customers to unlimited premium plans with higher prices. He also pointed out new opportunities for 5G monetization, such as cutting edge mobile computing for businesses and a wireless residential broadband product, which is expected to cover 50 million homes by 2025. Verizon’s stock fell 2.8% after its event.
The highlight of AT&T’s Friday morning presentation was not related to telecommunications. The company revealed a significantly higher subscriber target for HBO Max and HBO, and detailed management plans for a tier supported by advertising and international releases. Other guidelines and comments largely reiterated previous observations.
That streaming focus appeared to be sufficient, and AT&T’s shares rose 0.9% on Friday. The company now expects to have up to 150 million streaming subscribers by 2025, against its previous forecast – from the end of 2019 – of up to 90 million.
Lately, the market has been valuing streaming services based on revenue multiples and only subscriber growth – very different from AT&T’s slow-growing and capital-intensive telecommunications businesses.
Netflix
stocks (NFLX) have long been traded predominantly in their subscriber numbers, as ambitious targets for
ViacomCBS
(VIAC) and
Discovery
(DISCA) recently caused these actions to skyrocket. But AT&T may not receive that much credit due to its conglomerate structure.
AT&T and Verizon remain attractive to value investors – Warren Buffett’s
Berkshire Hathaway
(BRK.B) recently bet on the latter – and none of the management teams did much to change that. Trading about nine and 11 times future earnings, respectively, and with high annual dividend yields of 7% and 4.4%, they certainly look attractive compared to the market. But there is much more growth to be found elsewhere.
About a year after the acquisition of Sprint, the T-Mobile event on Thursday afternoon focused on the company’s progress in integrating its former rival. T-Mobile’s management is not afraid of its ambitions to gain market share in the rural and suburban areas of the U.S. and with corporate customers – where it is behind AT&T and Verizon today – and to suggest that the merger will result in even greater benefits than than when it was first proposed in 2018. Wall Street expected a revised synergy and free cash flow goals.
T-Mobile responded, raising its annual cost reduction estimate related to the merger by 25% to $ 7.5 billion, and saying its integration was a year ahead of schedule. The company now sees about $ 65 billion in accumulated free cash flow up to 2025, about 20% more than before, which opens the door to a potential $ 60 billion in share buybacks from 2023 to 2025 T-Mobile’s current market value is around $ 157 billion.
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But estimates to that effect were already in the consensus numbers on Wall Street. T-Mobile’s stock rose from a 1.9% rise on Thursday afternoon to a 1.1% drop as the event continued.
The execution of the management in the coming years will be crucial, with the shares quoted for success at about 48 times the future profits. However, T-Mobile remains the most compelling growth story for the US wireless industry.
Write to Nicholas Jasinski at [email protected]