Mid-January greetings from Kansas City, Cedar Rapids, and Omaha. Pictured is one of our CellSite crews hard at work on a civil construction project in Omaha during one of the abnormally warm winter days last week. They were able to get the pad poured before sub-freezing temperatures continued. Love these guys and their dedication to safety and quality.
Fourth quarter earnings are very important to the wireless industry due to new phone introductions. After a longer than usual market commentary, we will dive into several questions and offer our post-earnings prognosis.
Thanks for the many comments (and floor meeting requests) on the CES preview Brief. We missed the event this year but viewed most of the keynote addresses and a few others including this one featuring Sunday Brief reader and friend Andrew Ashur, CEO and founder of Lucid Bots. We learned a lot from watching it and think you will as well.
While it’s a few weeks away, we thought it would be good to let you know that we will be attending this year’s Metro Connect show in Ft Lauderdale from February 23-25 (additional details here). We are setting up meetings during the show and are probably going to have a Happy Hour-type gathering on the 22nd if you are in town. More details to follow, and look forward to meeting many of you there.
Finally, we want to acknowledge the passing of a long-time Sunday Brief reader and friend, Scott Widham. Many of us met Scott when he was getting Broadwing off the ground over two decades ago, and some know him for his ability to quickly repair and run cable systems, while recent friends know him from Alpheus and Ezee Fiber. He was truly a pioneer and a fantastic father. We already miss his wit and wisdom.
The Fortnight That Was
Note: What is usually designated a 2-week change includes trading for Friday, January 2 and therefore reflects YTD results. Next week’s Interim Brief will have an updated spreadsheet to reflect results for the week ending 1/2/2026 and the 2025 YTD results. Year-ending shares will be updated in February as they are posted.
“Soft start” is how many have described the last two weeks for both the Fab Five (-$230 billion YTD) and the Telco Top Five (-$35 billion YTD). While not great, the Fab Five have rarely followed a “as goes the first week in January, so goes the year” rule. Last year, both groups were negative at this point in the year and the Fab Five rebounded to $2.5 trillion in gains. As we have noted in previous Briefs, it’s unlikely we will have the same tariff volatility in an election year which will steady markets.
What is interesting is that Google and Amazon have increased their market caps. Last Monday, Google closed above $4 trillion in market capitalization and ended as the leader of the pack, slightly edging out Apple. Driving their recent surge was the following announcement (link here):
The words for this announcement were chosen very carefully, specifically “collaboration” and “most capable foundation.” In 2023, similar language was used by Apple Senior Vice President of Services Eddy Cue. Per this Bloomberg article:
“In his testimony, [Apple Senior Vice President of Services Eddy] Cue stressed that Apple sees no need to develop its own search tool because Google clearly is the best option.”
Apple clearly has a lot of AI partners to choose from, and the word “exclusive” is missing from the announcement. Apple may be following the thesis that billions of iPhone users might use Apple Intelligence in thousands of different ways. Maybe the Apple Foundation Models will form a “super brain” which will outperform any individual AI tool. Or maybe this is Apple waving the white flag on AI (doubtful).
Here’s what we think this announcement means –
- The importance of efficient processing on smartphones and terminating devices is critical to AI’s performance (and user perception). If local inference can take place on a smartphone (we think that is possible for some tasks today), then why not pair Apple’s chipsets with Google’s Tensor Processing Units (TPUs)?
- Apple will not compromise on privacy. They will tradeoff temporary delays in performance/ user experience to maintain confidentiality.
- Apple will likely have conversations with others (Anthropic’s Claude, Open AI’s Chat GPT) to create the “super brain” which can be valuable to a very wide variety of users and use cases.
In addition to the Apple-Google collaboration, there has been plenty of macroeconomic news to start the year as well. The jobs picture is not terrible but also not hot (see this release, however for a month-delayed regional view. We have talked about this in previous Briefs, but the South and Texas are both surging). One of the many tables we like to dive into deals with native vs. foreign born employment annual trends by gender. Here are the latest figures:
Total 2025 employment growth using the Household Survey was 2.426 million. 84% of that job growth came from native-born people (who now make up 81% of the total employed population). In 2024, that figure was 37% (198K growth in employment out of 540K total employment growth in 2024 – data here). Regardless of your political persuasion, that’s a very big and fast shift.
Job growth is still strong, even as the civilian labor force grows. But work force retirements are growing as well, pressuring the participation rate. We think that the native vs. foreign born data shows that job growth is real and readily available to each American, although movement to other areas of the country might be necessary.
The Household Survey job growth data above matches the growth forecasts coming out of the Atlanta Fed (website here). Their most recent (Jan 14) estimate for Q4 growth, even with the government shutdown impacts, is 5.3% (see nearby chart). As one colleague said to me last week, “Wonder what it would have looked like if we had avoided the shutdown?” One can only wonder. Even if the final figures come in at 4.5 or 4.7%, that’s still an impressive figure. Excluding infrastructure impacts, the rest of the economy is probably growing in the 3.5-3.7% range, which is a great number considering the shutdown.
What does this mean for 2026? More growth translates into more jobs. Depending on how many retirees reenter the workforce, the unemployment rate might fall. For telecom providers, it means payment consistency and perhaps (at the end of 2026) a bump in smartphone [plan] and broadband spending. On the business side, it should lead to 3-5% growth in overall spending, with cloud and computing growing the fastest.
The last time we saw an annual real GDP growth number above 4% (except for the COVID snapback year in 2023) was 2000. If the Atlanta Fed is correct, we might all be partying like it’s 1999 this year.
Q4 Earnings Preview – Who Has the Cash?
Telecom used to dominate the earnings headlines, especially at the end of the year when the latest iPhones were released. Then came Microsoft, Google, Meta, Amazon, and Apple – now they drive the headlines. AI adoption, however, is highly correlated to consistent broadband availability – they need fiber, cable Hybrid Fiber Coax (HFC) and fixed wireless to forge a ubiquitous experience. While equity values are wildly different today, the Fab Five are driving the future of some/ most telecom spending.
Building infrastructure is not cheap and requires a balance sheet that can accommodate lengthy paybacks (some BEAD FTTH builds will not payback for a decade or longer). We are going to take a look at three balance sheets (Charter, AT&T, and T-Mobile to determine who is best positioned.
Charter is the most highly leveraged telecom company in the Telco Top Five. Over the last twenty quarters, Charter’s leverage ratio (total net debt/ trailing 12-month EBITDA) has run between 4.22 times (1Q 2025) and 4.60 times (4Q 2022). The company is very comfortable their current $95B debt load.
The Cox acquisition is going to drive up Charter’s debt level by $16-17 billion ($4 billion in cash + $12 billion of assumed debt). Cox’s estimated EBITDA is around $5-5.5 billion if the merger closes by the end of 2026. As a result, Charter’s leverage ratio will likely drop below 4.0x once the transaction is complete.
Charter has debt, but they also generate a lot of cash each year from broadband and mobile subscribers (slightly less than $22 billion over the last four quarters ending 3Q 2025). They will likely be able to secure debt to finance the Cox transaction at the low end of investment grade level (using S&P’s ratings, at a BBB or BBB- level). See the nearby slide from the transaction announcement for additional details.
Bottom line: Charter generates a lot of cash but has a high debt level. Analysts and investors will be watching earnings for signs of EBITDA growth, particularly in the mobile unit.
T-Mobile acquired US Cellular on August 1, 2025, so this will be the first full quarter of earnings as a new company. Per T-Mobile’s earnings release, here are their leverage ratio and free cash flow trends:
T-Mobile learned a lot from the Sprint integration, and we believe that they are moving quickly to integrate US Cellular networks and systems. While the transaction did increase T-Mobile’s total debt to $83 billion, it is highly likely that the company will reduce it to a 2.3x ratio by the end of this year (~$5-6 billion of debt repayment).
While T-Mobile continues to be a cash generating machine (they converted 41% of net cash from operating activities to adjusted free cash flow in the third quarter), questions remain surrounding future fiber investment levels. Lumos and Metronet were both outstanding transactions, and they are acquiring other fiber companies (Metronet’s announcement about reaching the 3 million homes passed level with fiber is here). While the costs of acquisitions will be shared with their private equity partners (a brilliant long-term strategy), those companies will need to achieve an equal if not greater free cash flow generation level than the wireless operation even as they are growing.
Bottom line: T-Mobile is both growing and generating cash, a rarity in any industry, especially telecom. While there might be a churn bump due to Verizon’s increased smartphone promotions in the quarter, T-Mobile will quickly absorb US Cellular, expand their rural footprint, and grow fixed wireless broadband customers in the quarter. They continue to have the strongest balance sheet in telecom.
AT&T is the only telecom provider who is not undergoing either a merger integration or a CEO change (two events that are high on the telecom transformation stressful events scale). As a result, they will likely have the cleanest earnings picture. For Ma Bell, the story will go like this:
- We increased our fiber footprint yet kept our overall residential penetration at 40%
- Wireless postpaid retail promotional device and upgrade activities were both elevated but margins stayed in check with previous fourth quarters as the churn impact was minimized
- Cash generation is the strongest in over a decade and the outlook continues to be bright even with continued fiber buildouts
Here are AT&T’s latest EBITDA and cash flow trends:
AT&T’s total net debt as of 3Q 2025 was $119 billion, leaving the company at a 2.6x leverage ratio. The company’s turnaround is just beginning, and they have the balance sheet runway to acquire Lumen (expected to close in 2026) and convert their legacy footprint to fiber. AT&T has also been acquiring 3.45 GHz spectrum in 2025 as they continue to prepare for growth. But the consistency of the last 11 quarters of growth is notable and their retention of fiber and wireless customers is also commendable.
Bottom line: The only thing that will make the AT&T earnings release exciting is that they are going first and all of the analysts will try to project their wins and losses on their competitors. They should post consistent cash flow growth with some elevated postpaid wireless churn and better than expected AT&T Internet Air growth. Bunding will be the word of choice, and our only question is “Why not grow (Texas and Florida) fiber deployments faster?”
By the next Brief, four of the Telco Top Five companies will have announced earnings (T-Mobile will be combining their 4Q earnings and Capital Markets Day in mid-February). Most of the questions will center around broadband net additions and postpaid consumer retail wireless activity. We will have plenty to analyze, but don’t forget about cash! 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 Davidson College Basketball!
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.
