Is telecom a safe haven?

March greetings from Iowa and Missouri.  This week’s picture is of Saturday’s peaceful protest on the Kansas City Plaza.  While this location is known for weekly demonstrations, the crowd size was larger than normal.  It did not interfere with our ability to enjoy the “dawg days” special at Charlie Hooper’s in the Brookside neighborhood.     

This week’s Brief will be one giant market commentary as we view the general economic slowdown and the trade war as the key items impacting the business world.  All industries are impacted, but telecom appears to be less impacted than other tech-focused areas.  We will take our best cut at what the key themes will be for the industry – there are puts and takes. 

We post an interim Brief only on Easter weekend (in two weeks) but will resume the full Brief on April 27^th.  Here is a current Q1 earnings announcement calendar: 

One final note – you’ll be able to hear a bit of The Sunday Brief in April on Roger Entner’s weekly podcast (likely right around the Easter holiday).  For those of you not familiar with The Week With Roger podcast (Spotify link here; Apple link here), it’s a short-yet-sweet synopsis of key events in the telecom industry with occasional guests.  It’s on our listening list and we hope you’ll consider adding it to yours. 

The fortnight that was

The Fab Five lost more than a trillion dollars in market capitalization this week and has lost more than $2.6 trillion in the first thirteen weeks of the year.  Nearly all of the gains the group experienced in 2024 have been wiped out.  No stock has been spared – even Meta/ Facebook, who had been showing slight gains in the early part of 2025, is now down 14% for 2025 (roughly the same as Microsoft, who may have found a floor). 

We post the spreadsheet behind the above table with each interim Brief.  In that workbook there is a tab where we track the net debt levels for each Fab Five company.  Here is the latest view (a negative net debt number means the company is holding more cash and marketable securities on their balance sheet than debts): 

From a liquidity perspective, each of the Fab Five have adequate resources to survive not only this downturn, but probably several more ($268 billion more near-term holdings than total debt).  And, with the risk-free rate (10-year Treasury note) hovering at 4.0%, any borrowing would be at historically low levels.  We have emphasized in our quarterly earnings recaps that the real “Silicon Valley Bank” resides in the Fab Five Treasury departments and think that extra punctuation might be needed now.  Share buybacks might be slowed for a few quarters, and a few marginal projects might be suspended, but the Fab Five are still worth more than $10 trillion dollars and that’s not likely to fall much in the near term. 

While the Fab Five market capitalizations are dropping, the companies that each of the Fab Five have their eyes on (private or public) are also declining.  As most remember, Amazon was thwarted by the previous administration’s Federal Trade Commission in their attempts to purchase iRobot (original announcement here – $61/ share – $1.7 billion all-cash transaction including debt). As of Friday’s close, IRBT’s shares are down 88% since the previous acquisition efforts were terminated, while AMZN is up nearly 10% (see nearby chart courtesy of Yahoo! Finance).  Think the Seattle mega cap might make run at them again?  Why not? 

The same logic applies to online retailers (Amazon), software companies (Microsoft, Amazon, Google), and even other cloud/ cybersecurity companies (Google, Amazon, Microsoft).  If this is a man-made downturn and not indicative of larger, longer-term economic malaise (we are reasonably sure that’s the situation), then valuations are probably right for some selective, highly accretive acquisitions. 

Speaking of acquisitions, T-Mobile closed their acquisition of Lumos this week (announcement here).  Now the fun begins.  According to broadbandnow.com, Lumos has a presence in these markets: 

There are many more states shown on the Lumos website here.  Here’s how we subdivide Lumos networks:

1. Legacy Lumos, DSL + Fiber market.  Example:  Zip code 27265 which is north of High Point, NC (link is to Google Maps zip code coverage area).  Median home sale price is $253,000 according to Zillow and projected to rise 3-4% in 2025.  Broadbandnow.com indicates that Lumos covers 75% of this zip code with either fiber or DSL.  We think T-Mobile will want to increase the penetration of fiber to 95-100%.  Augment that with fixed wireless, particularly at the exchange boundaries. 
2. Legacy Lumos, (nearly) full Fiber market.  Example: Zip code 22980 which covers Waynesboro, Virginia.  From our look at the FCC map it looks like most of the area is covered by fiber.  Drive wireless penetration, particularly for small businesses.  Leverage Wi-Fi capabilities (including creating a Wi-Fi SSID that can only be accessed by T-Mobile devices) to enhance existing services.  Set penetration goal of 70% wireless service by end of 2027.  Drive improved home experience through existing Apple relationship (we assume that T-Mobile’s relationship with Apple is multiples stronger than that at the legacy Lumos telco).  Edge out with fixed wireless service. 
3. Lumos expansion markets (already established).  Example: Zip code 27712 where construction started in 2022.  The original press release contained a Lumos proposed construction map (about 18,000 homes and businesses).  T-Mobile’s investment will likely complete and expand that plan.  We like the Durham/ Chapel Hill market not only for its favorable demographics, but also because it has GTE/ Frontier/ Verizon (Durham), AT&T Fiber (Chapel Hill) and now T-Fiber.  Because there is no legacy DSL, T-Mobile has the opportunity to showcase the full suite of capabilities as they expand the market.  There also appear to be many opportunities to extend this expansion through additional fiber and fixed wireless deployments. 
4. Expansion markets (new).  Greenfield markets represent the greatest opportunity, in our view, to grow market share quickly.  Many examples exist in the newest announcements in Indiana (here), Illinois (here) and Ohio (here).  It also allows T-Mobile for Business to have a greater role in construction planning.

We think that both Lumos and Metronet will be highly accretive transactions for the company and wouldn’t be surprised to see a few more added as/after they digest these.  As we mentioned nearly a year ago (Brief here), the value of being a tech retailer/ marketer in these markets cannot be understated, and the relatively under-penetrated nature of these markets should add billions of wireless Customer Lifetime Value (CLV) to the company. There are several tens of thousands of homes to be converted, however, with some additional build assistance coming from the FCC’s Enhanced ACAM program (a Lumos subsidiary, North State Telephone, is one of the North Carolina recipients). 

Finally, one of the interesting items that may have missed your radar is the fight for the Apple Card network and banking relationships as outlined in this article from The Wall Street Journal (here).  Visa offering up a signing bonus of $100 million to Apple is a drop in the bucket for the credit card company, but we think that the easiest path for Apple would be to stay with their existing network provider (Mastercard).  We expect an announcement on any changes to the credit card network in May and the bank over the summer.  At that time, Goldman Sachs will end their costly foray into consumer banking started in 2019 (see our original article on the Apple Card from that time here). 

Is telecom a safe haven? 

This question has come up in various discussions over the past several days.  From the market capitalization changes shown above, it appears that some investors view companies like AT&T, Verizon and T-Mobile (and to a lesser extent their cable brethren) to be safe havens for equity holdings.  The rationale goes as follows: 

1. Communications services are essential and relatively free from downgrades.  It is unlikely that we will see a customer downgrade to prepaid services vs. switching to Spectrum, Cox, or Xfinity Mobile if they have a broadband home service.  It is equally unlikely that an unlimited customer would downgrade to a legacy “capped” data service.
2. The Big Three demonstrate consistent cash flows even with high capital spending.
3. Each of the Big Three pay a dividend (T-Mobile = 1.42%, AT&T = 4.17%, and Verizon = 6.3% yields as of 4/4).
4. Device incentives have a limited drain on capital (relative to network expenditures).
5. There are no spectrum auctions on the horizon to balloon debt levels.
6. The vast majority of revenues and cash flow are driven by domestic operations (limited foreign exposure).

Each of these arguments is valid, but there are additional dynamics to consider:

1. Comcast increased their wireless marketing efforts in the first quarter (to coincide with cable’s seasonal increase in broadband and video marketing efforts).
2. Excitement for (and switching activity related to) the iPhone 16 was muted.  Apple Intelligence is not ready for prime time (but we think it will take a giant step forward by the end of 2025).
3. As a result of the two previous dynamics, marketing and promotional spending did not see the same seasonal promotional drop that has been the rule.
4. Business spending will likely curtain prior to consumer spending.

How each carrier reacts to the current environment will be different.  Verizon introduced (here) a new marketing program this week for consumers that features three things:

Extending price locks to wireless products increases peace of mind.  Adopting AT&T’s marketing philosophy of promotion equality for new and existing customers removes an additional hurdle from switching back to Verizon.  And Verizon’s “bundle and save” marketing is undoubtedly more aggressive than each of their other competitors.  Adding a checking account and a credit card option to the communications bundle seems forced and extraneous, but it might be an effective way to buttress increased merchant processing fees. 

T-Mobile’s announcement last week was less sweeping and focused on data (here):

1. Termination payment assistance (up to $1000) when transitioning to T-Mobile Home Internet
2. $300 cash per device to switch to T-Mobile Home Internet
3. $20 off the monthly broadband rate if older customers (55+) switch to T-Mobile

This announcement was made against a legacy plan price hike of $5 that took effect last Wednesday.  The company wasted no time raising prices after their five-year price freeze condition as a part of the Sprint merger had ended.  We do not anticipate that churn will rise meaningfully from this increase, but changes like this always add something to the switcher pool and probably drove Verizon’s price lock message. 

AT&T is continuing to aggressively push bundled pricing and it’s AT&T Guarantee as an acquisition strategy.  We think bundling is working well for them today (not sure if the guarantee is resonating with prospective switchers, however), and expect AT&T to surprise (to the upside) the most when earnings come out later this month. 

One of the questions we were asked this week concerned smartphone pricing and whether carriers would reduce promotions.  As of April 6^th, there has been no price change for the iPhone 16 on Apple’s website, and Cupertino has not announced any sort of hike mirroring the 54% tariff rate that hit China on Saturday.  Assuming some sort of price increase occurs, however, here are ways carriers could reduce the impact:

1. It’s likely that the carriers would reduce their incentives prior to raising prices.  Apple could also reduce their advertising support given to each carrier.
2. Lower trade-in credits seem like a logical lever to pull (which would create a gap between third-party trade-in companies and the carriers).
3. There is a definite possibility that the carriers could yet again increase the number of months a consumer pays for the device (from 30 to 36 or even 40).  Whether T-Mobile would move to a longer number of months (currently at 24 for all plans) to pay for the device is unclear.
4. It’s possible that one or more carriers could include limited device protection with all new devices sold (a high-margin product).  Spectrum Mobile tried this $5/mo. solution in 2024 but pulled the offer quickly after a few weeks (more here).

Bottom line: Telecom is safer than many other industries and is relatively immune from economically driven downgrades.  Competition continues to be strong, however, and the intensity of the fight for bundled customers is increasing.  While the industry might show stable characteristics as a whole, each company is facing different dynamics that could meaningfully move their market capitalization. 

That’s it for this week.  In the next Brief (April 27th), we will dive into earnings results.  Until then, if you have friends who would like to be on the email distribution, please have them send an email to [email protected] and we will include them on the list (or they can sign up directly through the website).

Finally – Go Royals, Sporting KC, and Davidson 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.