On the heels of AT&T and Verizon’s Q1’21 results, it makes sense to take a bigger picture look at their  wireless strategies.  AT&T’s print was applauded by the Street with the stock up over 4% on the day of the report (big move for a company of this size!).  Verizon was met more by a bit of a  “Meh!” response.

For both these players, we are very much at a pivotal moment for their wireless businesses.  Both companies have more than showed their  longer term  commitments toward  this business by spending $53.9B and $28B in the recent C-Band auction (including clearinghouse fees) from Verizon and AT&T respectively.  So why  is this a pivotal moment?  Because a pricing headwind has been blowing directly in their face the past few years and 2021 will lay out the foundational path as to how they try to change the direction of this wind.

To put some meat on the bone of this pricing degradation, in a recent blog piece, the CTIA noted that for US, wireless “sticker” prices have declined 45% since 2010. And to add insult over injury, ARPU has declined 21% in the same period.   To put this in perspective, during this same period food prices are up 63%, housing up 65% and cable/satellite TV services are up 96% (!!!).  So as Fed Chairman Jay Powell goes through his  inflation ‘watch list’, it seems wireless services could safely appear at the very bottom.

While Powell may not have to worry about this trend, AT&T and Verizon sure do.   For a few  reasons, frankly.  First, profitability continues to be a challenge and the fixed cause nature of this industry is being seen on margins.   While AT&T had good news to say on the sub front in Q1’21, AT&T’s mobility business saw EBITDA margins compress by 290 bps YoY.  Verizon’s margins have also hit  troubled waters  with Q1’21 Consumer Business margins down 90 bps YoY.

Second, even with their winnings from the C-Band auction, both AT&T and Verizon  are still behind T-Mobile in terms of mid-band spectrum holdings.  Specifically,  Team Magenta still has 1.3x more mid-band than Verizon and 1.7x more than AT&T.  As a result.  T-Mo can turn on the faucet much faster and offer more to consumers for a lower price.   Simply put,  if midband is the ‘Goldilocks’ of spectrum, T-Mo can be the ‘Big Bad Wolf’ to both AT&T and Verizon given their advantage here.

Last,  if  the carriers  are getting less revenue from the ‘typical’ wireless customer, they need to branch out and diversify their revenue. They know this and are trying to do this is in different ways (VZ with more fixed wireless home and other 5G initiatives; AT&T through fiber and joining the Hollywood party).  While they have gotten the memo and understand the urgency, none of these strategies are layups given that each path faces a growing competitive field and a whole lot of capital!   This is not to say they cannot work, but the time, urgency and focus has to be put in now.  As with all things in this space, it will be incredibly fascinating to watch how it all plays out.