Q4 Earnings Review (Part 2) – The Chinks in T-Mobile’s Armor

Presidents’ Day weekend greetings from Cedar Rapids and Kansas City.  After a full market commentary, we will provide a thorough analysis of T-Mobile’s Capital Markets Day and Q4 earnings.  We think that they are still the best positioned telco in the US (with the lowest execution risk) but there are a few chinks in their armor. 

Metro Connect is coming up the week after next, 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 seeing many of you there.      

The Fortnight That Was

Earnings are complete for both the Fab Five and the Telco Top Five.  As of Friday’s close, each of the Telco Top Five have posted double-digit gains to start 2026 and each of the Fab Five are down.  This is a part of the overall market dispersion away from tech stocks (particularly the Fab Five) into a broader market.  The Fab Five (with the exception of Alphabet/ Google) are about flat from end of 2024 levels.  It’s important to note that over the last two years (since the beginning of 2024), the Fab Five have added $4.2 trillion in value.  Over that same period, the Telco Top Five have added less than $100 billion in value with $71 billion of that figure coming in the last two weeks. 

For those of you who missed it, here are the announced full year 2025 and planned 2026 capital spending levels for Alphabet, Microsoft, Amazon, and Meta: 

Alphabet:            $91.4 billion in 2025.  Projected $175-185 billion in 2026.

Amazon:              $131.8 billion in 2025.  Projected $200 billion in 2026.

Meta:                   $72.2 billion in 2025.  Projected $115-135 billion in 2026.

Microsoft:           $88.2 billion in FY 2025 (ended June 30).  Projected $140-155 billion in FY 2026 (ending June 30).

Using the midpoint of the 2026 range, that equates to $675 billion in spending this year, an increase of $290 billion.  And, as we discussed at length in last week’s interim Brief (here), most of this spending will come through operating cash flows, not debt issuance.  Thanks to founders continuing to hold large share positions for Meta, Google, and Amazon, there is less investor clamor to slow down.

The logical question from this is “who wins from this increased spending?”  Part of the answer can be seen through five publicly traded hyperscaler suppliers: 

• Caterpillar is up 119% over the last year and 291% over the last five years ($363 billion market cap as of 2/13)
• Vertiv is up 114% over the last year and 993% over the last five years ($90 billion)
• Enersys is up 76% over the last year and 93% over the last five years ($6.6 billion)
• Cummins is up 63% over the last year and 146% over the last five years ($83 billion)
• Eaton is up 26% over the last year and 214% over the last five years ($151 billion)

Outside of Enersys (who owns Alpha Power), these are not small companies experiencing triple digit returns over the last five years.  In addition, there are plenty of private companies (see the latest Sabre Industries news involving TPG and Blackrock) that are recapitalizing, merging, and the like.  Bottom line: The ripple effect of Fab Five spending is meaningful and will continue through 2026. 

On the macroeconomic front, we had the January employment report (here) and the latest Consumer Price Index (CPI) report (here).  Using the Household Data (which is used to calculate the unemployment rate), there are 2.17 million (1.34%) more people employed and 105 thousand fewer (1.41%) unemployed than January 2024.  Construction jobs are up +161,000 over the last year and construction wages are up 4.7% since last January.  Using Establishment Survey data, total nonfarm private payrolls grew by 172,000, a very robust figure.  This was offset by reductions in federal government employees of 34,000 and state/ local government employees of 8,000.  Since their recent employment peak in October 2024, federal government payrolls have shrunk by 324,000 or 10.9% (see nearby chart – data here).  When this chart is updated for January data, the employee total will be the lowest since 1966.  And, unlike other efforts to replace civils servants with contractors, the estimated current ratio is 2.4 contractors per federal employee, down from 3.5 in 2010 (data here). Private sector blue-collar employment is picking up, while white-collar employment is slowing down. 

As we have indicated through social media posts (LinkedIn post here), the national employment data needs to be looked at through a regional or state lens (latest data through December is here).  Here are the “head to head” matchups that we think warrant attention (other than the politically charged California vs. Florida, or California vs. Texas matchups): 

• Border War: Illinois vs. Missouri.  Illinois lost 1.7 thousand jobs in 2025 while Missouri has gained 52.8K.  Note: Illinois has 2x the population of the Show Me state. 
• (Legacy) SEC vs. (Legacy) Pac-10:  California + Oregon + Washington lost 17.9K jobs in 2025 while Georgia + Alabama + Tennessee + Mississippi created 50.3K jobs.  C-O-W is roughly twice the population vs. G-A-M-T population (52.7 million vs. 27 million). 
• ACC vs. Big East.  The Carolinas and Virginia grew 126K jobs in 2025 (this includes the losses in federal employees which impacted Virginia).  New York + New England (NY+CT+RI+MA+ME+VT+NH) created half as many (64.4K) over the same period.   Ther are 40% more people living in the Northeast than the Carolinas + Virginia. 
• The Empire State vs. the Keystone State: Pennsylvania and New York state grew by about the same number (77.6K vs. 73.9K).  New York state is about 1.5x the population of their southern neighbor. 

We are living through the largest diaspora since the Great Depression.  Malaise in the West (17.9K losses in 2025), offset by growth in the Southwest (TX+OK+LA+AR = 187.5K growth) and steady as she grows in the South (Carolinas + Florida + G-A-M-T = 204.6K growth).  Employment growth begets infrastructure growth (schools, roads, water/ sewer, fiber, electricity).  What is surprising is the growth in the Midwest excluding Illinois (192.6K in 2025 for OH+IN+MI+MN+WI+IA+MO).  Things are not tough all over, but the West Coast and New England are not growing as fast as other areas. 

Private payroll growth plus lower inflation is the current trend (see latest CPI data released Friday here).  With annual CPI at 2.4%, the impact of President Trump’s tariff policy is starting to hit its annual lap.  Private inflation metrics such as Truflation show that prices are falling even faster (see their latest Tweet here – we use Truflation to look at longer-term trends – they correctly identified the decrease in rents back in November/ December). 

We will park further discussion of inflation until the Producer Price Index figures are released on February 27.  Based on private data metrics, we think the bias is toward disinflation.  Real GDP growth of 3.5-4.0% in Q1 and inflation moving to 2.2-2.3% bodes well for the US economy, especially for Texas and the South. 

The Chinks in T-Mobile’s Armor

T-Mobile closed the earnings parade with a good report last Wednesday (full package here).  They followed that up with a “halftime update” Capital Markets Day in New York City (YouTube video here).  While they remain a strong company, there are chinks in the armor that were apparent in their results and follow-up presentation.  Prior to discussing those vulnerabilities, here’s our reasons why we believe they are still King of the Telecom Mountain: 

1. Postpaid account growth.  Even when the Metronet, Lumos and US Cellular acquisitions are removed, the company still grew net new postpaid accounts by 1.2 million over the last year (2024 and 2023 comparable figures are 1.1 and 1.3 million).  Account growth is driven by a combination of postpaid devices, fixed wireless access (FWA) and rural expansion.  Neither of their peers are growing accounts at this pace, and T-Mobile is doing this with less fiber households and increased competition from cable. 

T-Mobile is right to mention that account growth (vs. line growth) is a more accurate way to measure value creation tomorrow’s telecom environment.  We hope that they will adopt a similar metric to that used by AT&T and show the percentage of Metronet, Lumos and fixed wireless households that also are T-Mobile wireless subscribers.  Cross-promotion is a critical growth opportunity for the company in 2026 and 2027.

2. Free cash flow conversion.  Peter Osvaldik, T-Mobile’s CFO, showed the following chart last Wednesday: 

T-Mobile is converting service revenue to cash at a consistent 24-25% rate even with increased competition and merger-related costs (the full table of how they get from cash flows from operations (CFFO) to free cash flow (FCF) is on page 26 of the Factbook).  In that 2026 dip, they are adding 4,000 new cell sites (primarily for rural expansion) as well as integrating the US Cellular footprint.  Even if they had to spend an additional $1-2 billion in 2026 and 2027 cap ex to complete (or expand) their expansion initiatives, they have plenty of leverage to complete it.  No telecommunications company is executing on this metric as well as T-Mobile.

3. A stellar balance sheet.  T-Mobile underemphasizes the quality of their balance sheet considering all of the growth they have experienced over the last 15 years.  Here is the detailed table from the Fact Book: 

T-Mobile has made sizeable investments in Metronet and Lumos ($5.5 billion), acquired US Cellular ($4.4 billion), and repurchased $21 billion shares over this period.   Net debt has only grown by $9 billion and leverage ratios have remained flat.  T-Mobile’s balance sheet is ready for the next spectrum auction or acquisition. 

In addition to these three items, we were encouraged by Deutsche Telekom’s announcement that they will not participate in stock buybacks in 2026 and to potentially increase their share stake in coming years (announcement here).  We consider this a vote of confidence in Srini Gopalan and the executive team.    

But all that glitters is not gold.  We see two major chinks in the T-Mobile armor that we believe the company needs to address quickly: 

1. T-Mobile for Business (TFB).  A decade ago, TFB was too small.  Then Sprint was acquired, and business accounts grew.  Then came network slicing for first responders (called T-Priority) and SuperMobile Business plans.  More focus and investment here (including additional leadership) will lead to higher net additions.  We struggle to see why T-Mobile has not extended their Wholesale relationship with cable into a full-blown retail relationship with Comcast Business and Charter Business.  This trio would dominate the business landscape and force Verizon and AT&T to spend more on their Enterprise units as they are trying to upgrade their rural copper plant and integrating their acquisitions.  This is, in our opinion, the most glaring chink in the armor. 
2. Partnerships with Lumen (Enterprise) and Zayo.  T-Mobile will continue to spend $10 billion or so on network upgrades and rural expansion in 2026.  The hyperscalers are funding the buildout efforts of Lumen and Zayo, and, as the estimates above show, will spend 65-70X more capital in 2026 than Magenta.  To prepare for an end-to-end AI experience, why not join that party?  T-Mobile announced a relationship expansion with Lumen in 2021 but updates on that effort ended in a year.  Given AT&T’s historically strong relationship with Microsoft and Verizon’s announced relationship with AWS (a vestige of Hans Vertberg that we think Dan Schulman will retain), T-Mobile needs partners. 

Our final observation concerns T-Mobile’s leadership team, which consists of legacy T-Mobile USA “pirates” (John Saw, John Freier, Mike Katz, Peter Osvaldik) and Board “veterans” (Srini Gopalan, Andre Almeida).  We cannot help but see the divide even at the Capital Markets Day – pirates largely on one side, Finance and Board veterans on the other.  Where is the 30-year-old wunderkind that busts through conventional wisdom?  While this sounds counterintuitive, why do we need all of that experience at the table?  As a reminder, when Mike Sievert joined John Legere on the original 2012 Pirate voyage (announcement here – love the pic), he was 43.  When Peter Osvaldik took over the CFO role from Braxton Carter (announcement here), he was 42.  When Mike Katz became the head of T-Mobile for Business, he was 36.  In our opinion, new blood (likely from within the T-Mobile USA, not from Europe) is needed.   

Bottom line: T-Mobile continues to manage profitable growth better than their peers.  Their options are substantially greater than their peers.  No wireless company is ready for AI, and T-Mobile could lose their “best positioned” designation if they ignore their vulnerabilities. 

In the next full Brief, we will cover several items teased during earnings calls that require a follow-up. 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.