Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with the S&P Global Market Intelligence tech, media and telecom news team. Welcome to "MediaTalk," a podcast hosted by S&P Global, wherein the news and research staff explore issues in the evolving media landscape. Today, I'm joined by Lynnette Luna, a senior research analyst in the Kagan media research group within S&P Global Market Intelligence. She leads its coverage of the US consumer mobile and tower markets. How are you doing today, Lynnette?

Lynnette Luna: I'm well, thank you.

Reynolds: All right. It's been a busy time for the wireless world. I guess that's always the case. A lot of transactions overall. T-Mobile US Inc. closed one deal, then announced another major acquisition. First-quarter results for the traditional players were pretty strong considering seasonality. And it looked like their counterparts in the cable world are continuing to make strides. A lot of spectrum to cover. So let's get to it. So T-Mobile closed on its $1.35 billion acquisition of the Mint companies. And what was that transaction for, Lynnette? What were the assets gained by T-Mobile there?

Luna: Yeah, mostly customers and the ability to segment the customer base a little more. Mint had a really good deal where it attracted the lower end of the market. MVNOs, in general, help carriers attack different segments of the market so that they don't have to do it themselves. And also Mint was very good at this self-serve option where you could sign up for the service online. You could program your phone using eSIM, and you didn't really have to talk to a customer service representative. And that's the way the industry is going. Verizon Communications Inc.'s doing that with its subsidiary, Visible Wireless. So everything is digital. And you actually don't even talk to a customer rep, and for a certain subset of customers, that is adequate and that saves a lot of customer acquisition costs for a lot of carriers. So I think Mint Mobile had a lot of expertise in that, and that will help T-Mobile down the line. And I think it passed regulatory muster pretty well because there's no spectrum involved. Pretty much those are T-Mobile customers anyway because they're MVNO customers.

Reynolds: Okay. That deal, though, is only an appetizer. Towards the end of May, it was announced that T-Mobile was looking to buy United States Cellular Corp. for, I think, about $4.4 billion. What are the assets in play here and T-Mobile's strategy, Lynnette?

Luna: There are just some complementary spectrum assets that kind of fill in T-Mobile's spectrum portfolio. It wasn't a huge amount of mid-band spectrum. The mid-band spectrum is really key for 5G in terms of high-speed data and propagation. And that's the battle right now, the mid-band spectrum. So I think if there was a lot more mid-band spectrum involved, there'd be a lot more carriers, its competitors being a little more vocal about that issue. I don't think it will have difficulty being passed by regulators. It's mostly customers and some assets, but there are also things that were left on the table like towers, which makes me wonder if US Cellular is going to be a tower company going forward. They had some really good revenue that way. It also helps T-Mobile move more into rural markets where it wants to be. Its rural position is a little lagging in terms of coverage for 5G. Everybody kind of lags in rural areas, but at least AT&T and Verizon have pretty good 4G coverage, whereas T-Mobile's service kind of drops in more rural areas, so it will help with that as well.

Reynolds: So you don't think it's going to require a lot of regulatory scrutiny. All the same, it's going to take a year or more to get it done that way. Your sensibilities for that?

Luna: Probably. We pretty much only have three nationwide operators. I know they wanted to make DISH Network Corp. the fourth operator, but it's still pretty lagging, of course, in terms of it being an MVNO and it's still rolling out its 5G network. So anytime you only have three carriers, I think they're going to be a little more careful looking at the competitive aspect there and if that hurts competition.

Reynolds: You've talked about US Cellular. It's still going to be a tower player. Is there anything else for it to do? Is it going to be subject to ... maybe it's going to get bought as well?

Luna: It could. Its tower assets could be bought. Towers are pretty valuable. You get rent every month and they're recurring revenue and they're an important asset because carriers need towers. And also, as 5G comes along, there are new tenants coming to towers, like drone companies and satellite companies. So it's exciting times for towers in terms of being able to expand their customer set beyond carriers.

Reynolds: The FCC still doesn't have spectrum auction authority. How big a problem is that for wireless operators these days?

Luna: There's not a big chunk of spectrum coming down the pipeline, but they need to have that regulatory authority restored. I'm not sure how long that type of process takes, but there will eventually be more 5G spectrum coming to market, hopefully with a deal with the Department of Defense and a deal to clear some of those bands and relocate them. Carriers really sound the alarm bell, of course, to maintain a competitive position in the global market. Yeah, that needs to happen soon.

Reynolds: Always need more spectrum, right?

Luna: Yes.

Reynolds: All right. Let's turn to operations and results from the first quarter, which was a strong one financially for the big three players: T-Mobile, Verizon, AT&T Inc. Why did things go well for them, Lynnette?

Luna: I think carriers are a little less focused on CapEx now that they have their 5G networks pretty much rolled out. I think they're really focusing on addressing the hotspots of their networks, and so they can relax on the spending and push more revenue generation from their customers. And there's a big push to get customers onto high-end data plans. So we're seeing revenue rise, and we're still seeing growth. I think they're being a lot more disciplined on where the growth is coming, especially Verizon. So we'll probably see the whole year being pretty successful in terms of increasing revenue and maybe not aggressive subscriber growth, but we'll still see positive subscription growth.

Reynolds: Okay. Let's take a look at the three players. It's May, acquisition mode aside, T-Mobile had a very good first quarter, so it would seem.

Luna: It did, really. Like I said, the capital spending is a little bit down. I think it's still hitting on all cylinders. It's still able to be really aggressive, and it's really positioned itself well as good value for consumers. And it's got the biggest 5G network in the country, so that's a really good marketing message for it. And many of its plans are still cheaper than its competitors.

Reynolds: They're projecting more than 5.2 million postpaid net customer adds. Is that realistic? Do you think?

Luna: I think all carriers are pretty conservative when they come up with their numbers so that they can exceed them, right? Like the airlines for their on-time record.

Reynolds: I'm not even going to go there. That's, I think, a little different. I don't know. What do I know? All right, we'll go to Verizon, which is the biggest player here. Its net phone adds were negative, but there was still happiness with how they performed in the first quarter.

Luna: Yeah, I think they changed their pricing around, and they're seeing that it resonates with the market. They think they made it a lot more simple. It used to be every carrier threw everything but the kitchen sink at consumers to bundle everything and to show that there's value in wireless and you don't really know what you're paying for. And now they just did this go-to-market approach where you just subscribe to one of the plans and then you add their perks that you want. And they said that's really building recurring revenue for them. And I think a lot of these carriers, too, are doing a better job of targeting and segmenting their customer base. AI is helping them a lot to do that so they can offer better go-to-market propositions for certain segments of customers. So I think we'll start to see that come to fruition more this year as they see the patterns of customers. They've had that data, but I don't think they've been able to really harness the data and really come up with stronger propositions based on customer usage.

Reynolds: So more sophisticated segmenting and marketing?

Luna: Yes.

Reynolds: For Verizon, Lynnette, they have two basic pricing plans, is that right?

Luna: Yes. So one's a little more expensive than the other. They're still struggling also on the prepaid side. I'm not sure really digesting Straight Talk and the other prepaid brands that they purchased. I think they had hopes of really upselling those customers. I think it's going slower than expected, and they keep losing on the prepaid side. Almost everybody's losing on the prepaid side, and I think it's just there are better deals on postpaid. So I think we'll probably continue to see a drop on prepaid.

Reynolds: I think AT&T in the first quarter, Lynnette, had about 350,000 postpaid phone net adds, and that's really good. Or is that, or maybe is that what you expect at this point?

Luna: They've been doing really well over the last several quarters, just really, like they said, executing and also segmenting the markets. I think they've just had a very disciplined approach to the market. So I continue to be pleasantly surprised every quarter.

Reynolds: They also trumpeted that their churn rate was the best of the three.

Luna: Yes. Yes. And I like what he calls them, they're not empty-calorie additions. That was John Stankey.

Reynolds: That's Mr. Stankey, right?

Luna: Yeah. It used to be any customer that you could get. And now it's, like I said earlier, a real big focus on just higher-spending customers, the ones that will give you higher ARPU as we go along.

Reynolds: All right. Let's turn our attention to the cable side, which is led by the big players, Charter Communications Inc. and Comcast Corp. First of all, can you give us a brief tutorial about how the cable guys make the wireless work for them structurally, and is this a high-margin business for these guys?

Luna: Yes. So the cable industry has struggled with wireless in the past, trying to own their own assets and trying to buy spectrum and trying to build their own networks, and it's failed a lot, especially for Comcast way back in the '90s. So they were smart this time. They became resellers, and they also leveraged their vast number of Wi-Fi hotspots. All three — Altice USA Inc., Charter, and Comcast — all have big hotspots of Wi-Fi that they share across the country. So they're able to offload a lot of traffic onto Wi-Fi and not have to rely too much on their partners like Verizon and T-Mobile. So that really creates this capital-light structure for them where they can invest more in customer acquisition and be a little more aggressive on the pricing side because they're saving money on the capital side. And I think they can continue to find ways to offload that traffic. There's CBRS spectrum that still hasn't been utilized yet. I know Charter and Comcast both own some licensed CBRS, but there's also unlicensed CBRS that they can offload. And I think they're all studying that and how they might do that, especially in the markets where traffic is a lot higher.

Reynolds: So how does cable make this work, Lynnette? How do they go to market with it? What's their positioning?

Luna: So they're not nationwide providers. They only offer service where they offer broadband. And typically, you have to be a broadband customer to also have wireless with them. There are a few exceptions, but the big three, of course, are Altice, Comcast, and Charter. So that way, they can bundle mobile with broadband. They can start being really aggressive with those bundles. Eventually, they could offer video, they could offer lots of different perks. Already, we've seen them be aggressive with their own Wi-Fi hotspots and offering greater data speeds on the Wi-Fi hotspots and trying to be a little different than what carriers offer, like in terms of upgrades. Charter has a "you can upgrade anytime" plan. So they're really trying to combat some of the losses that they're seeing on the broadband side, or mobile is being used as a way to retain broadband customers.

Reynolds: So I'm going to focus on the big two for a second here, Charter and Comcast. They're neck and neck in terms of video customers, and it seems to be the same thing in terms of wireless with Charter also holding a slight edge there at the end of the first quarter. Is that just a recent thing, or are they going to switch places quarter to quarter, Lynnette?

Luna: I think it just depends on how aggressive each one is. Charter's kind of a little bit more aggressive, I think, than Comcast, especially like offering anytime upgrades to customers on their limited plus offering. I think they launched a replacement plan for $5 a month. So I think they're being just a little bit more aggressive than Comcast is right now. And it probably depends on their broadband market position. Obviously, fixed wireless from carriers like Verizon and T-Mobile are having an impact on their broadband businesses. It's interesting because they're competing really hard on the mobile side while their mobile counterparts are competing really hard on the broadband side. So, an interesting dichotomy.

Reynolds: Sure. I was under the impression Comcast, though, has really lowered prices in a couple of regards. Is that right?

Luna: They have. I think they've offered like free lines. They've raised the premium hotspot data limits for their introductory plans. So I think that we'll continue to see those both those carriers be pretty aggressive throughout 2024. They really like how it reduces churn for just the entire customer base and really brings value to their customers with mobile.

Reynolds: All right, so we're getting right to the end here, Lynnette. Your expectations for the wireless business overall in 2024, and it's going to be a really good year for which players?

Luna: It'll be a good year for the big three. It's going to be a pretty stable year, I think. Wireless has proven that it's just as important as a utility, right? People aren't going to shed their wireless services. In fact, they're spending more because they see it as an important thing for them. I think that carriers would really like to see more services and devices attached to these accounts to keep raising revenue. So I think also that families are buying phones for children at a younger age. Some of our surveys support that a lot of the new lines that are added to family plans are for children. Smartwatches continue to be pretty popular. So there's going to be continued ways to bring value to the customer while also raising revenue.

Reynolds: This concludes this episode of MediaTalk. I just wanted to thank Lynnette for spending a lot of time sharing your views on current and future developments in the wireless world. Appreciate it, Lynnette.

Luna: All right. Thank you very much for having me. I appreciate it.

Reynolds: This is Mike Reynolds. Thanks to all of you for listening. We'll catch up soon on the next edition of MediaTalk.