Greetings from Cedar Rapids, Boston, Houston, and Kansas City. Pictured is our mutt Abby, who just turned eight. She has the same enthusiasm for “snow days” as many eight-year-old children. Hope everyone is staying safe and exercising patience and grace in this winter weather.
Speaking of enthusiasm, we will discuss first quarter earnings from the Telco Top Five as well as a few of the Fab Five companies in this week’s Brief. As the table shows in the market commentary, investors applauded AT&T and Verizon results, and roundly booed Microsoft’s. We dive into the reasons below.
There are a few companies that will report earnings in February. Here is the schedule of the latest Fab Five and Telco Top Five earnings calendar:
By the next Brief, we will have the full earnings picture as well as any announcements from T-Mobile’s Capital Markets Day, which promises to put some punctuation on what has been a dynamic earnings season.
Metro Connect is coming up, and we will be there (in a CellSite Solutions role). Most meeting slots have been filled, but if you would like to catch up on industry trends (or the latest in telecom/ hyperscaler shelter developments) we would be glad to connect. Look forward to connecting.
After we published the last Brief, we received word that Rocco Commisso, CEO of Mediacom Communications, passed away. In the days running Sprint’s Cable Solutions unit, we became friends with Rocco and the entire Mediacom team. Rocco was an impactful leader who took on the challenge of providing rural broadband in a capital constrained environment. While he was a very astute businessman and savvy negotiator, he was also dedicated to his family and replicated that trust throughout the company he founded. A small portion of that devotion is captured in this 60 Minutes piece. He will be missed by many in both the cable and telecom industries.
The Fortnight That Was
Note: Share counts will be updated for all companies by the next Brief.
We are partially through the latest quarterly earnings cycle, and the results are generally positive for the Telco Top Five (+$29 billion or just over 4% in 2026). The Fab Five cap changes are as unique as the reaction to quarterly results, with robust iPhone sales driving gains in Apple this week (+$169 billion), strong cash flow growth catapulting Meta (+$146 billion), and concerns about spending sending Microsoft into a nosedive (-$265 billion). We have seen this many times in the past and find that by the end of the year most of the Fab Five recover. As noted above, Amazon and Alphabet still need to report.
Because of word limit restrictions, we will hold on our discussion of negative net debt changes until the next Brief. But Meta’s disclosure that they “anticipate 2026 capital expenditures, including principal payments on finance leases, to be in the range of $115-135 billion, with year-over-year growth driven by increased investment to support our Meta Superintelligence Labs efforts and core business” was still a surprise to many, especially considering the fact that they have already spent $94 billion the last two years. Only a portion of this is actual network assets, but AI-related spending does not seem to be slowing down and is in fact dwarfing last mile (wireless or wireline) capex.
We will conclude this shortened market commentary with one piece of macroeconomic news. Even with changes to net export and consumer spending contributions to the economy (as well as the government shutdown), the Atlanta Fed is still predicting Q4 real GDP growth of 4.2% (see nearby chart). This is extremely robust and implies a nominal growth rate of ~7%. We expect an initial read on Q4 growth by the end of February. Something to think about as we look at large telecom company revenue growth rates.
Q4 Earnings Preview (Part 1) – Money Can’t Buy You Love, but it Can Buy You Net Additions
It is hard to believe that Dan Schulman is only in his fourth month of running Verizon. When the Board of Directors announced the change on October 6 (here), many of us thought Dan would be a transient 68-year-old caretaker, a former PayPal CEO who would make some tweaks until a truly transformational leader could be hired. Boy, were we wrong.
Here is Dan’s statement from the release linked to above:
“Verizon is at a critical juncture. We have a clear opportunity to redefine our trajectory, by growing our market share across all segments of the market, while delivering meaningful growth in our key financial metrics. We are going to maximize our value propositions, reduce our cost to serve, and optimize our capital allocation to delight our customers, and deliver sustainable long-term growth for our shareholders. I want to thank Hans for his remarkable leadership and all he has contributed to Verizon. I deeply appreciate his friendship and support in this transition. I look forward to working with our employees, our regulators, our partners, and the Board to do the hard work it takes to regain our leadership in our sector across mobility and broadband.”
Verizon’s fourth quarter results proved that Big Red can not only defend their base (although monthly postpaid churn did rise to 0.95%) but can also attract new customers (4Q gross additions at 2.679 million, up 15.3% from 4Q 2024). However, their cable MVNO customers also grew in the quarter, resulting in a 3.8% total annual residential subscriber growth:
Until the latest earnings report, the storyline was that trading off cable net additions for flat to lower retail postpaid additions was not only inevitable, but also the best option for the Verizon shareholders. Verizon allowed larger cable companies to name their host network in public, and the profits from cable helped to boost the Consumer Group’s overall margin percentage (actual adjusted EBITDA grew slowly over the last three years with most of that growth from the MVNO profits).
Verizon now has more consumer and business retail wireless phone subscribers on their network than we can recall (it would have to be prior to 2021), and they have more prepaid subscribers on their network than they have had since 2Q 2023. Each segment is growing. In contrast, AT&T grew their total retail phone base by 166K in the quarter, consisting of 421K postpaid net additions offset by 255K prepaid net losses.
In his prepared remarks, Verizon CFO Tony Skiadas indicated that the company “leveraged our financial strength and flexibility to fund growth opportunities.” Simply put, heavy promotions focused on new-to-Verizon customers attracted the best consumer postpaid growth the company has seen in several years.
One quarter does not equate to a turnaround, however, and it does not appear that heavy promotions are going to be a critical part of Verizon’s long-term value creation strategy. As we showed in last week’s interim Brief (here), Frontier has successfully grown their fiber base:
Verizon (with Frontier) has established a target of 750,000 to 1 million postpaid phone net additions in 2026. Assuming that Verizon Business contributes 350,000 phone subscribers to the goal (historical annual growth adjusted for one-time government workforce reductions), the consumer unit is left with 400,000 to 750,000 phone net additions. With Frontier’s fiber base now “slightly above 9 million” and another one million new passings (Frontier only) for 2026, along with a two percent incremental penetration of the base, they could contribute at least 200,000 of what remains. This leaves legacy consumer Verizon with 200,000 to 550,000 net additions growth.
Dan and Tony spent a lot of time discussing churn on their call, and we think that will be the primary way that they will deliver net additions growth in 2026. For the postpaid phone business alone, to achieve their low end of the goal, they would need to reduce postpaid phone churn by 3 basis points. While that sounds small, it is going to require a lot of changes to process (and perhaps some short-term EBITDA impact through credits and other short-term retention offers) but relies less on market dynamics than internal execution.
We will write more about Verizon in the next full Brief (in particular, their Fios growth, modernized MVNO agreement, comment about hyperscaler interest in local fiber, and capital outlook), but do not think that their phone growth is unreasonable, even before any product introductions. The initial promotion to Frontier’s existing 2.72 million broadband subscribers, using a convergence bundle similar to AT&T’s, should yield results.
AT&T: Convergence is Beautiful
AT&T led the earnings parade with a very strong convergence success story best summarized by the following slide from their earnings presentation:
For those of you who do not follow the footnotes closely, the convergence rate is defined as the “the ratio of Converged Customers to AT&T Fiber connections.” AT&T added 700K homes to its AT&T Mobility family (roughly 2 million subscribers using an average subscribers per home ratio of 2.90) in 2025. In 2025, AT&T’s total postpaid subscriber growth was 1.74 million, down from 2.25 million in 2024 (postpaid phone growth was 1.5 million). The result: AT&T is likely losing customers outside of their fibered footprint.
The acquisition of Lumen’s fiber footprint represents a similar opportunity to AT&T as the Frontier acquisition does for Verizon. Frontier brings more than 9 million passings to Verizon – Lumen likely between 4-5 by the time a transaction closes. Assuming 20% of opportunity with converged offerings (AT&T disclosed that only 25% of the Lumen fiber base subscribes to AT&T Mobility today) results in one million additional converged accounts and close to three million additional subscribers. Improving overall penetration of the Lumen footprint as well as AT&T Mobility share are low hanging fruit for the Consumer unit.
Meanwhile, AT&T Fiber passings growth continues to grow. As the table below shows, total consumer passings grew slightly faster in 2025 (2.5 million) than in 2024 (2.2 million):
Business locations are also growing faster (as we expected), and it goes without saying that nearly all cell towers serving AT&T Mobility (including Internet Air) customers are connected to their fiber. The result is a very low-cost structure (and deep competitive moat) for Ma Bell. As we have mentioned several times (including as late as last May – see Brief here), our only question on AT&T Fiber results is “Are they growing fast enough?” The latest Census data (here) indicates that there is a lot of upside, especially when the Lumen markets (Phoenix, Seattle) are included. We hope that they will be able to point to several legacy markets where penetration is above 50% (note – Frontier has likely achieved the 50% mark across 2.5-2.7 million of the base shown in the table above based on their 3Q 2025 earnings release).
AT&T’s John Stankey spoke about where penetration rates could go over the long-term in response to a question on the earnings call:
“I do expect the convergence rate to continue to improve. And we’ve, I think, shared that we have an objective when we were talking to you in our investor call — on our investor conference last December that right now, we’ve got plans in place and we’re going to drive that to 50% and feel very comfortable with that. I don’t expect it to stop there.
You’ve heard me say many times that I think we’re in a structural realignment of the industry. And ultimately, this is going to be an industry of converged providers that operate assets that allow for consolidated services to businesses. And if I think back, looking in the rearview mirror on history and you look at what bundle rates were when there were other compelling bundles in the market, we approach periods of time where 80% of consumers were bundling, and certainly I would expect that at some point in time, over the long haul, you might see something similar to that occur. Whether it’s 75% or 80% or 70%, I don’t know where it settles in, but our expectation is that you’re going to continue to see improvement in that rate ratably over time. And in fact, that’s the realignment that we’re dealing with here, which is as churn goes up on unbundled customers by a bit, we’re dealing with that problem right now.”
Bottom line: AT&T is very determined to follow their convergence strategy (which applies to all residences and businesses in their legacy franchise territories and selected expansion markets). Unlike Verizon, we think AT&T will have fewer integration headaches with Lumen (4-5 million additional homes passed on a base of 26 million is easier to swallow) leaving AT&T more time to dedicate to fiber expansion. It takes time, but we think they have a good shot of emerging as the top converged provider in the nation.
In the next Brief, we will cover larger themes with a focus on any new news coming out of T-Mobile’s Capital Markets Day. 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.
