T-Mobile’s new partner could propel its growth

T Mobile‘s (NASDAQ: TMUS) is heavily concentrated at the moment in rural markets. He plans to increase his share from 13% today to 20% by 2025. And now he has a new partner to help him: Walmart (NYSE: WMT).

Starting next month, Walmart shoppers will be able to purchase a new phone and activate it on T-Mobile’s network at 2,300 of its stores. Walmart’s rural presence can help put T-Mobile ahead of more customers at a time when it has a huge advantage in those markets.

T-Mobile CEO Mike Sievert. Image source: T-Mobile.

Leader of 5G in rural America

T-Mobile already has a significant lead in 5G coverage in rural markets. It covers 305 million people with its 5G network on the 600 MHz bandwidth. He says it’s more than double the coverage of AT&T and four times that of Verizon. It is important to note that this difference in people covered is in low density rural markets.

But the 600 MHz 5G network doesn’t deliver the performance promises of 5G, like much faster internet speeds and lower latency. In order to achieve this goal, T-Mobile is rapidly expanding its network using the mid-band spectrum it acquired during its merger with Sprint. It plans to equip tens of thousands of towers in rural markets in order to extend the network.

It currently covers 165 million people and plans to cover 200 million Americans by the end of 2021 with what it calls Ultra Capacity 5G and will cover 300 million by 2023. Meanwhile, plans from Verizon and AT & T’s forecast approximately 175 million and 150 million people, respectively. , covered by mid-range 5G by the end of 2023. Competitors are around two years behind.

This is a real opportunity for T-Mobile, as long as it can present its product to customers, build brand awareness and tout its network’s advantages over its competitors.

In addition, it offers home internet service using 5G. This could be another selling point in rural markets where ISP options are slim and speeds are slower than more metropolitan and urban markets.

How Walmart is powering growth

Walmart offers several advantages as a distribution partner for T-Mobile in rural markets.

First of all, T-Mobile doesn’t have to pay to rent and set up its own storefronts. While T-Mobile will pay Walmart a commission on every phone and plan sold, that keeps it from having to spend a large chunk of anything up front. CFO Peter Osvaldik noted that this was “very profitable from a distribution point of view, because in a lot of these places it might not make sense to have a store owned directly by the company account. given the size and density of the population “.

Additionally, it allows T-Mobile’s plans to take on competitors who already sell at Walmart, including Verizon and AT&T and their prepaid brands. This can help gain the consideration of consumers who simply buy a new phone or plan.

Another advantage is that Walmart already has an established presence in rural markets. In fact, it is often a strong presence in these markets. This means that T-Mobile can gain a foothold in rural markets faster, instead of opening new storefronts one by one and striving to drive traffic to those stores. And since T-Mobile has a network advantage now and for the next several years, it is important for it to drive customer adoption quickly when it has the greatest opportunity.

What is the opportunity?

Rural markets make up a significant portion of the American population – they are simply widely dispersed. Still, that’s about “40% of the market, call it, 15 million homes, 140 million people,” Jon Freier, vice president of T-Mobile’s consumer group, said on the earnings call. of the second trimester.

If T-Mobile increases its share of the rural market from 13% to 20% over the next five years, that represents 10 million more subscribers, or about 2 million per year. That’s pretty big, even for a business that adds around 5 million new customers per year.

In the future, it should become more difficult for mobile operators to add new customers at the rate they have seen recently, and it will become a bigger battle to take market share from each other. T-Mobile’s Walmart deal and the network’s leadership in rural markets position it well to do so over the next two years.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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