The Big Three Wireless Stocks Are Seeing a Growth Surge. We Break Them Down.

I can’t find proof that America’s pets are learning to text and tweet. Yet the nation is somehow gaining wireless accounts faster than people.

During the second quarter, there were 2.22 million “postpaid net adds,” a smidgen shy of the record set a year ago. Postpaid accounts come with regular monthly bills and make up three-quarters of the market. Net adds are new subscriptions minus canceled ones. The growth works out to 3.9% year over year. More than two-thirds of it was captured directly by telecoms, and the rest came from so-called mobile virtual network operators, including cable companies that pay telecoms for the right to sell piggyback service on their networks.

We’re 35 years past Gordon Gekko calling shots from the beach on his brick phone Wall Street. Mainstream adoption was arguably reached roughly seven years later, when I bought history’s least necessary Motorola MicroTAC to go with my suspenders and briefcase in what was technically a stockbroker trainee job, but is probably more accurately described as investment cosplay. If even a Nobody McNo-Clients had a cellphone way back then, where are all of these new accounts coming from now?

One source is customers who used to prepay for minutes signing on for postpaid plans, because even though they’re pricier, they’ve become better deals, says Goldman Sachs telecom analyst Brett Feldman. Carriers have gone back to offering big handset subsidies for sign-ups. Many plans offer unlimited data, hot-spot access, and freebies—

T-Mobile US:

(ticker: TMUS) throws in a:


subscription with all but its most basic service tiers.

Cellphones are also making their way into younger hands. Last year, 43% of 8- to 12-year-olds had their own handsets, up from 24% in 2015, according to Common Sense Media. Asked why, most parents say they want to be able to get in touch if needed, Pew Research says.

The industry is headed for heavy cash flows, but some players are grabbing more growth than others.

Verizon Communications

(VZ) has been a notable laggard. Its share of postpaid-phone gross adds recently dipped below 29%, versus closer to 32% during the same period three years ago. And churn, the rate of customer defections, has ticked up from pre-pandemic levels.

Blame something called midband spectrum, and maybe the “Can you hear me now?” guy. For much of the past two decades, Verizon was seen as the nation’s network leader, so customers were willing to pay premium prices for its service. Starting in 2002, the company ran commercials featuring actor Paul Marcarelli as the Verizon test guy, popping out of a manhole or plodding through a swamp, phone to ear, saying, “Can you hear me now?” “Good.”

In the commercials, Verizon made a prominent display of its coverage maps. Customers learned to look at the maps to decide which carrier to go with. Marcarelli defected to Sprint in 2016. “Hi, it’s Paul,” he made a point of starting his Sprint commercials with, so as not to be accused of taking his test-guy character with him. Sprint at the time had loads of wireless capacity in the 1-gigahertz to 5-gigahertz frequency range, or midband, which is the part that makes today’s 5G phone service fast, but the company didn’t have the financial firepower to put its holdings to full use. That changed when it merged with T-Mobile two years ago.

Suddenly Verizon is playing from behind on network quality, and customers are still looking at those maps. T-Mobile’s technology lead is by no means insurmountable. Verizon dropped more than $50 billion at a government spectrum auction last year, doubling its midband resources. By the end of next year, it will have deployed this new spectrum and likely closed the coverage gap with T-Mobile.

Convincing customers is another matter. It comes down to mass times velocity. “These large wireless carriers tend to be like battleships, which is to say it’s hard to turn their direction quickly,” says Feldman. “When things are going well, that momentum tends to carry through for a sustained period of time. But when that momentum starts to slow, it can be difficult for them to turn the businesses around.”

For now, Verizon is likely to use big handset subsidies to gain new subscribers and keep existing ones from leaving. That’s good news, potentially, for out-of-contract phone shoppers. But it could weigh on profit margins for a while. Shares at least sell cheaply, at less than 12 times this year’s prospective free cash flow.

Feldman rates Verizon at Neutral, but he’s bullish on


(T) and T-Mobile, for different reasons. T-Mobile is the industry’s best grower. Its new network advantage will allow it to go after customer groups where it and the former Sprint were both relatively weak, like businesses and rural consumers. And there are costs to cut and plenty of free cash to unlock. Shares trade at a premium valuation for now of 22 times this year’s estimated free cash flow, but the company could double its free cash flow over the next two years. Management has committed to spending $60 billion to retire shares between 2023 and 2025, or one-third of the current stock market value.

AT&T is more of a deep-value leap of faith. The company has cut its dividend and sold its way out of show business, which should free up plenty of money to spend on better 5G. Shares go for 10 times free cash flow, and even the newly trimmed dividend still makes for a yield of over 6%.

Verizon and T-Mobile have recently shown excellent growth in something called fixed wireless, which is where customers install cellular broadband gadgets in their homes as an alternative to cable broadband. T-Mobile signed up 560,000 customers there last quarter, and Verizon, 250,000. Together, those numbers made up all of the growth in broadband.

Feldman reckons many of those customers had limited and low-quality home broadband alternatives, like DSL. The question from here is how well 5G networks will keep up with early growth in home broadband usage, and whether they can evolve to give cable companies and their zippy fiber broadband more competition. If so, future commercial work for Marcarelli could take him out of the swamp and into the family room.

Write to: Jack Hough at [email protected] Follow him on Twitter: and subscribe to his Barron’s Streetwise podcast.


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