4. T-Mobile US, Inc. (NASDAQ: TMUS)
Number of Hedge Fund Holders: 103
Wireless carrier T-Mobile would be one of the biggest beneficiaries of the 5G revolution. The company claims that its 5G network is 3.5 times bigger than Verizon’s and reaches over 200 million people. KeyBanc recently gave bullish comments about T-Mobile stock, along with several other telecom companies, citing the upcoming strengths in the 5G market in the U.S. The firm sees net organic growth at T-Mobile slowing slightly in 2022 before accelerating back to 5% – 6% range.
As of the end of the fourth quarter, 103 hedge funds in Insider Monkey’s database of 887 funds held stakes in TMUS, compared to 94 funds in the third quarter. Viking Global is the biggest stakeholder in the company, with 8.71 million shares, worth $1.2 billion. TMUS ranks 20th in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
Schroder Investment Management said in their letter that they are hopeful for T-Mobile US, Inc. (NASDAQ: TMUS)’s growth. Here is what Schroder Investment Management has to say about T-Mobile US, Inc. in their investor letter:
“T-Mobile US, Inc.’s (“TMUS”) 2020 merger with Sprint Corporation (“Sprint”) was transformational. The company now controls c.45% of low/mid-band spectrum (which is crucial for 5G) but has only 29% of industry subscribers. We expect this gap to narrow over time, via market share gains, while the deal will also generate significant merger synergies; TMUS should, consequently, achieve substantial profits and free cash flow growth over the next 3-4 years.
TMUS has, hitherto, had an inferior network to its peers, and achieved its subscriber growth via very effective marketing and lower prices, encapsulated in its ‘un-carrier’ approach.
In the 5G era, however, it will have a much better network than its peers – as well as lower prices – because it has more of the critical mid-band (2.5GHz) spectrum than AT&T Inc. (“T”) and Verizon Communications Inc. (“VZ”) combined.
The value of this advantage is reflected in the very aggressive C-Band auction currently underway, in which all three companies have likely spent heavily; T and VZ to supplement their holdings of the key enabling asset for the new 5G era, and TMUS to reinforce its advantage and force its peers to leverage up, so they will be less likely to compete on price. The proceeds from this auction have already reached $81bn (and will entail further substantial spending to ready it for use).
Thus, TMUS is targeting the rollout of its 2.5GHz spectrum across 100mn and 200mn POPs by the end of 2020 and 2021 respectively; this will allow it to offer average speeds of 300Mbps (peak speeds >1Gbps) to subscribers (using only 60MHz of the total 160MHz it owns). Its coverage/offer will be far superior to the competition: T’s standard 5G speeds are 40-60Mbps (i.e. barely faster than 4G LTE); VZ’s 5G ultra-wideband network will offer faster speeds (in theory up to multi-Gbps) but currently covers only 2mn POPs, and is difficult to scale because the mmWave spectrum, on which it relies, propagates only over very short distances and is subject to interference (e.g. by foliage).
It is unlikely that the C-band auction will allow T/VZ to rectify their considerable spectrum lag relative to TMUS: 280MHz is being sold, and VZ requires c.190MHz and T c.150MHz to match TMUS. And the spectrum will take considerable time to clear and be deployed (120MHz clears in December 2021 and 160MHz in December 2023). It is also worth noting C-Band is not nearly as good as TMUS’ 2.5GHz – it has weaker propagation characteristics, thus requiring a much denser network grid which is more costly.
We forecast TMUS to grow its market share of subs by only 100bps per annum 2021-2024, i.e. in line with its prior rates, despite having a better network and cheaper pricing than T/VZ.
