The Sunday Brief

Connecting technology, telecommunications, and the internet

Value Creation – Long-term charts, Fab Five vs. Telco Top Five (March 17)

by | Mar 18, 2023 | TSB

“Flight to quality” is an appropriate caption for the events of the week. While many of us were focused on the fragile banking sector and the European Central Bank’s decision to increase interest rates by 50 basis points (here), the Fab Five had their best week since 2020, up a whopping $605 billion. Year to date, they are already up $1.22 trillion with each Fab Five stock increasing value by double digits. No crisis there. While many focused on the flight to Treasury notes (particularly the 2-year term – see chart from CNBC here), it’s interesting to note that equity investors moved strongly into the Fab Five as their “flight to quality.”

The Telco Top Five also had an up week, although their returns are still slightly negative for the year. T-Mobile continues to be the market cap leader ($174 billion as of Friday, $19 billion more than Verizon). None of the Telco Top Five are having a particularly strong (or weak) year so far. We are compiling our first quarter outlook for cable and wireless for next week’s Brief based on comments made at recent investor conferences, and some of the insights are surprising. More in a week.

The big news this week was T-Mobile’s acquisition of Mint Mobile (announcement here – excellent and humorous video worth watching as well in the link). We referenced a possible Mint Mobile acquisition in our recent Brief called “T-Mobile’s Grown Up Problem.” The 39% cash/ 61% equity mix ($1.35 billion maximum purchase price) is particularly interesting considering Mint was an exclusive MVNO to T-Mobile.

This transaction also establishes T-Mobile as an MVNE (Mobile Virtual Network Enabler) to a host of other MVNO (Operators), further tightening the grip around the MVNO ecosystem. That part could raise a few regulator eyebrows and perhaps force a divestiture/ sale to another MVNE.

T-Mobile’s commitment to the Mint Mobile brand is also intriguing. Mint does not own any stores, and, if published estimates of 3 million subscribers is correct, they have cracked a code that others have not. There are many operating synergies (device logistics and financing come to mind) and T-Mobile also picks up some MVNO leaders in David Glickman and Rizwan Kassim. Value brands become more important during recessions, and, provided this closes prior to the next Apple iPhone launch, this could be another well-timed, easy to integrate acquisition.

One additional note if you are hungry for the latest developments in the financial crisis – Brian Sullivan, the former host of CNBC’s Worldwide Exchange (weekdays at 4 a.m. CT in the Midwest) has moved to the 6 p.m. CT slot with a new show called “Last Call.” We have found his recent shows to be particularly informative. Here’s a link to Friday’s show which featured banking expert Dick Bove.

More commentary in next week’s Brief. Hope your basketball team is still dancing. File is below.

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