How iPhone 13 Dialed Up the Competition Among Telecom Giants 

Telecom giants have been enjoying robust wireless subscriber growth over the past two years. However, T-Mobile, AT&T and Verizon have continued to lag the market during that time. So far this year, shares of T-Mobile fell 5% while AT&T and Verizon both sank 8% — all while the broader market rose nearly 18% in the same period. 

So, why can’t these troubled telecom stocks catch a meaningful bid higher? Well, for one, a lot of the recent strength in wireless and high-speed Internet subscriber growth was a result of the pandemic. People were stuck at home and relied much more heavily on their phones and Wi-Fi to stay connected both professionally and personally. 

As a result, stronger-than-average wireless subscriber growth has heightened competition among the largest carriers. Not that competition wasn’t always stiff, but there has been an ongoing promotional war in Big Telecom. The companies have been offering up promotions for all sorts of things, including streaming services and, most recently, the newly launched iPhone 13. 

As soon as Apple announced the upcoming iPhone 13 at its Sept. 14 event, AT&T, Verizon and T-Mobile quickly raced to advertise their latest promotional offers to lure in new customers and retain existing ones.  

Though there are several caveats, AT&T’s new and existing unlimited wireless customers can get the iPhone 13, iPhone 13 Pro and Mini for free with a 36-month installment plan and eligible trade-in. Meanwhile, T-Mobile's Forever Upgrade program gives customers up to $800 off either an iPhone 12 or iPhone 13 if they trade in a qualifying device. 

Verizon’s new and existing customers can get either a free 128 GB iPhone 13 Pro with a trade-in and unlimited plan or up to $1,000 off all other models with eligible trade-in. 

Aggressive promotions are keeping the subscriber figures sky high, but there are pros and cons to the strategy. Promotions come at a cost and eat away at the average revenue per user (ARPU) over many months.  

However, even as promotions can be costly for providers, they have longer-term benefits such as lower churn rates. For the most part, free phone promotions were usually available exclusively to new customers, but AT&T’s retention promotion plan, which has been in effect for about a year, was available to both new AND existing customers. In that time, the telecom has seen its phone churn rate fall from 1.07% in Q4 2019 to 0.69% in Q2 2021, becoming the lowest in the industry for the third quarter in a row. 

By including existing customers in its promotion, AT&T then secures loyalty for at least the entirety of the time it takes to pay off the device’s cost. If the customer leaves the company before that period, they are liable to pay off the remaining cost of the device.  

The bottom line is that wireless carriers are offering lower upfront costs for devices but then charging higher monthly rates. The upgrade cycle for smartphones was getting longer, which did not bode well for the carriers. These aggressive promotions give customers the incentive to upgrade more frequently and thus lock customers into more expensive long-term contracts and ultimately drive up the top line. 

It’s also worth noting that the new iPhone 13 is the second 5G compatible iPhone. Selling more 5G-compatible phones gives the Big Telecom companies the opportunity to grow their 5G user base at a critical time when 5G networks are growing rapidly across the U.S.  

The main question is whether the growth is sustainable. If the expectation of slowing growth comes to fruition, it would spell more trouble ahead for telecom stocks. 

Winning over investors has been tough even with these positive catalysts and recent strength in the telecoms' core businesses. Investors seem to think the good times won’t last much longer and deceleration is quickly approaching. That negative sentiment could be what is causing the prolonged underperformance in telecom stocks.  

Unfortunately, the disconnect between strong fundamentals and underperforming stock will likely worsen as the COVID effect fades in the coming quarters, unless investors see some proof that T-Mobile, AT&T and Verizon are slowly building back their long-term value propositions. What these companies do in the face of deceleration will dictate how both Wall Street and Main Street value their stocks going forward.  

If T-Mobile can hold onto wireless market share and AT&T and Verizon can show investors that their strategies of offloading underperforming media assets and paying down hefty debt are working, the stocks could finally start playing catch-up.