Mother’s Day greetings from Cedar Rapids and Kansas City where, as the opening picture shows, the entire town is getting ready for the World Cup qualifying rounds (picture is outside a favorite Brookside neighborhood pub). June 11 cannot come soon enough for soccer fans.
We continue our earnings analysis this week with additional commentary from Verizon and T-Mobile’s earnings calls. As the title implies, Verizon is chasing T-Mobile, and, while we think that AT&T is also well positioned, the battle will be Red vs. Magenta for the next 12-18 months.
We will be gathering at Fiber Connect the week after next on Monday evening (not Hattie B’s this year as the venue is Orlando). If you are interested in joining Monday’s dinner, please email sundaybrief@gmail.com directly and we will get you on the guest list. Last year we had a group of twelve; we will probably keep it to a similar number.
The Fortnight That Was
Over the last two weeks, the Fab Five have gained $848 billion, part of an exceptional $3.5 trillion turnaround from the end of March. Three of the five stocks have led the way: Google (+$1 trillion YTD), Amazon (+$450 billion) and Apple (+$315 billion). The Telco Top Five have maintained a small ($7 billion) gain so far in 2026 with Verizon and AT&T’s $29 billion gain offsetting a $22 billion loss from T-Mobile, Comcast and Charter.
Many are surprised at the recent (+$327 billion last two weeks) gains for Apple. As we discussed in the previous Brief, we are not surprised at all. As analysts predict how incoming CEO John Ternus will change the company, they quickly see that not only is he a terrific choice, but a logical successor to Tim Cook (and Steve Jobs). Parlaying software and computing gains into functional hardware that can be produced at scale is critical to the AI value equation. If that hardware can lead 30-40 million additional subscriptions annually for each of 3-4 AI engines (see this Bloomberg interview with their Apple reporter Mark Gurman here for the “all of the above” strategy), all the better. Without magnificent hardware, however, no one wins. That’s why Apple is going to continue to rise.
Lots of handwringing during Fab Five earnings about capital spending levels (we discussed the net debt levels in last week’s interim Brief). Yet, as this CNBC article describes, Anthropic’s Claude growth is up 80-fold on an annualized basis (the company was only planning on a 10x increase). As opposed to previous technology developments, Artificial Intelligence (AI) is highly personal – we want our Gemini or Claude instance to remember our preferences in our voice. Cloud services (e.g., streaming music, a highly personalized/curated application) create personas for a specific need. AI relates that interest to the other ones (attending a concert, watching a documentary, identifying communities that share your preferences). Hence the need for personalization (perhaps for work and home profiles) and the need for localized computing (good for CellSite Solutions, our current gig).
On the macroeconomic level, it appears that the economy is not dipping into recession but poised for better growth. The latest read on first quarter GDP is 2.0% (news release here). The contributors to that growth were outlined by the Bureau of Labor Statistics here:
The exports contribution is particularly strong given the current trade environment (more details from the Bureau of Economic Analysis monthly report here). Net exports currently have a 1.45% drag on real GDP. There is a slight (0.2%) impact from government employee compensation due to the Q4 2025 government shutdown. For a first quarter, however, it’s very good, and, if there are increased oil exports due to the Mideast turmoil, the second quarter could far exceed the current Atlanta Fed estimate of 3.7% (GDP Now site here).
If petroleum-induced inflation persists (broad-based pricing impacts to all industries that use fuel), then the telecommunications industry might be impacted by downgrades. These are only likely in extreme circumstances (and almost always as consumers consider other alternatives) and would likely take the form of fewer upgrades (e.g., from 500 Mbps to 1 Gbps for broadband providers). We think that video (and telephone) cord-cutting will occur regardless of the economic climate. Prepaid might pick up a few downgrades (e.g., Mint Mobile) but there isn’t a lot of difference today between basic unlimited on prepaid and postpaid “essential” low-end plans.
Q1 Earnings Review (Part 2) – Why T-Mobile Should be Concerned About Verizon
In part one of our earnings review, we had the following hunches:
- AT&T churn went to Verizon (first) and T-Mobile (second) with Comcast a distant third. AT&T’s focus (based on their most recent earnings call) is on converged (AT&T Fiber) customers. If that means wireless losses in out-of-territory areas (e.g., the Northeast), so be it. That’s why we think Verizon likely picked up more churning AT&T customers than T-Mobile.
- Charter’s churn went to AT&T (first) and T-Mobile and Verizon competing for second. Faced with a new fiber offering, many Charter customers decided to make the switch (see our Brief from last summer titled “Battling New.” It’s complicated, but both things can be true – Charter can have improved NPS but can also lose customers to AT&T Fiber).
- We also think that Verizon may have taken some share from T-Mobile, particularly with some US Cellular customers (re: 20-30K customers picked up from US Cellular in a quarter is a big deal even for a company the size of Verizon). Verizon also turned up marketing in certain metropolitan areas this fall where they had lower network utilization.
Those generally turned out to be true. Here is the data for Verizon:
The first quarter retail postpaid phone “hole” that Verizon has had to dig out of each year for over a decade turned into a gain less than a half year from the day Dan Schulman took over the CEO reins from Hans Vestberg. Churn was down sequentially (as expected – fewer switching decisions), and accounts slipped by 127K. Margins in both consumer and business segments were each higher.
Is this the beginning of a turnaround? Below are a few key performance indicators (KPIs) Dan cited on the most recent earnings call to bolster the case:
- Annual revenue growth of 2.9% (3.7% without impacts of January’s network outage)
- 0.90% monthly postpaid phone churn (improved 0.05% from Q4; March was at 0.85%). Fewer outages = lower churn. Lower churn leads to upper end of the 750K-1 million 2026 retail postpaid phone net additions range
- Cost to acquire down 35% from the fourth quarter to March (as expected – no iPhone launch)
- Free Cash Flow (FCF) at $3.8 billion for the quarter (+4%). Goal of 7% growth on target
- Best quarter on record for customer satisfaction (likely an internal score that includes Net Promoter Score)
- On target for 32 million fiber passings by the end of the year
- On track to deliver $1 billion in operating synergies (end of 2028) associated with the Frontier acquisition
- Core Verizon cost takeout target of $5 billion in 2026 on track
Earnings per share guidance raised, thanks to lower churn, more efficient marketing spend, and fewer activities that anger customers. Verizon is aggressively looking to lower their contributions to the industry switching pool – that’s the first time in over a decade that they will be able to make that statement.
We think that achieving lower churn (absent additional network outages) is the easiest of the 2026 objectives for Verizon to achieve. Fewer “price ups” has an immediate impact on lower churn. Changing certain processes also impacts marketing costs and churn as well. Here’s Dan’s explanation from the call of how churn changes with respect to phone replacements:
“If a customer calls us and says that they’re having a difficulty with service in their home, previously, what we would have done is send them a free handset so that they wouldn’t churn. And what would happen at that point is a customer would have a nice new handset and still have poor service at their home. So we just spent like $1,000 and did not solve the customer’s issues. If we had listened and sent a femtocell to be installed at the house, we could have done that at one-third the cost and made the customer happy.”
This is low-hanging fruit for Verizon wireless customers who are not in their fiber footprint. But the value proposition increases even more when all in-home wireless traffic is offloaded to Verizon’s Wi-Fi (now including Frontier areas) and routing/ voice quality improves. Our view (as shared with Lumen/ AT&T) is that more product and marketing dollars focused on converting non-Verizon wireless customers who have Frontier fiber (now FiOS) is needed. The resulting wireless + fiber customer satisfaction scores should be segregated from the rest of consumer wireless – no blending. And each should have aggressive targets established through the end of 2027. Use the launch excitement to gain disproportionate wireless share.
T-Mobile also reported very strong metrics and earnings (along with joint ventures with Oak Hill Capital and Wren House to acquire GoNetspeed, Greenlight Networks, and i3 Broadband – full release here). Here are a few of the highlights:
- 34.4 million total postpaid accounts (+217K)
- ARPA of $151.93 (up from $146.22 in Q1 2025). This drove a sequential 2% increase in postpaid service revenues.
- Monthly account churn of 1.04%, unchanged from Q1 and up from 0.94% in Q1 2025)
- Adjusted FCF of $4.6 billion, up 5% from Q1 2025
Our favorite schedule for T-Mobile (although weaker due to merger-related activities) focused on free cash flow conversion:
While the adjusted FCF margin is down (the denominator is quarterly service revenues), that’s primarily due to the inclusion of merger-related expenses in net income as they reach peak spending on the US Cellular acquisition. A very good quarter for T-Mobile, with continued investment and no appetite for large (cable) acquisitions.
Why should T-Mobile be worried about a resurgent Verizon?
- Even with staff and capital spending reductions, Verizon’s engineering capabilities are still strong. They will figure out how to improve C-Band throughput (and wireless customer satisfaction) in major markets. We believe that Top 50 Metros will become the battleground starting this summer through 2028 – it’s an area where T-Mobile is vulnerable and has fewer fiber resources. (Note: Verizon still spent $2.6 billion in Q1 – the allocation of capital spending takes a few quarters to have a full impact, and that’s true both for increases and decreases in spending).
- Fiber deployments will increase (mainly in legacy Frontier areas) and Verizon’s brand still carries weight (although recent surveys are favoring T-Mobile – more here from Fierce Network). The savings from increased use of in-home Wi-Fi for core network functions (end-to-end control and visibility) will be material. Verizon still has a relationship with Google/ YouTube TV which could also be an important bundle for some segments.
- Consumer is today’s focus, but soon Dan will shift his gaze to Verizon Business. While T-Mobile does not separate Business and Consumer units in their reporting, the comments in the Fact Book suggest that T-Mobile for Business had strong performance (cited as a top driver of account and ARPA growth). Dan will more aggressively focus on business account retention, using broadband and other services as discount opportunities to deliver more EBITDA to shareholders.
- Verizon, with their One Fiber initiative, also has a lot of fallow fiber which could be parlayed into a larger relationship with one or more AI providers. Here is Dan’s comment at the end of the conference call:
“And I would also point out, on the commercial side, we are in quite deep discussions right now with hyperscalers, with alternative cloud providers, large enterprises to integrate our Fiber, both dark and lit, and our 5G assets to support their AI infrastructure efforts. And that can include data center connectivity, ability to help them with their training and inference. And that is the potential for multi-billions in revenues, quite frankly. We’ll have more specifics on that in the next three to six months, but the world is moving towards edge computing, towards data connectivity, and we are in a real good place to play inside that AI infrastructure revolution that’s going on.”
We will have a lot of additional answers at the end of July, but our take is that Verizon is on their way to reclaim the lead in market capitalization as they “sweat their assets” and deploy additional local fiber. And, as T-Mobile contemplates “going global” through a combination with their parent, Verizon might get the opening they need to create a more permanent lead.
We will pick up our coverage on hyperscaler spending and Verizon’s relationship with their cable MVNO partners in the next Brief. In the meantime, if you have friends who are interested in being notified each time we publish a Brief, please have them sign up at www.sundaybrief.com.
Go Royals and Sporting KC!
Important disclosure: The opinions expressed in The Sunday Brief are those of Jim Patterson and Patterson Advisory Group, LLC, and do not reflect those of CellSite Solutions, LLC, or Fort Point Capital.
