Guggenheim: T-Mobile Home Broadband Aimed At Boosting Sprint Merger, Not A Threat To Cable

A move by T-Mobile Us Inc TMUS to offer home broadband to some rural and underserved homes is aimed at boosting chances for a merger with Sprint Corp. S and probably poses only a “muted threat” to cable companies, according to Guggenheim.

What Happened

T-Mobile said in a press release Thursday that it is starting an invitation-only pilot project to run broadband internet with unlimited LTE data to up to 50,000 homes this year in rural and underserved areas. The company said it was “laying the foundation for the New T-Mobile’s plans to disrupt the home broadband market.” Eventually, the company says, it will offer wireless home 5G internet.

T-Mobile said home internet is one of the “most uncompetitive and un-customer friendly industries in existence,” and said its plans could save consumers lots of money.

Why It’s Important

The plan appears to involve T-Mobile’s proposed merger with Sprint, Guggenheim analyst Mike McCormack said in a Thursday note.

“Clearly, there is political motivation to launch a broadband threat to cable, with today's announcement indicating that the trial is limited and the goal of reaching more than 50 percent of U.S. households by 2024 predicated on the capacity (that would be) provided by a merged T-Mobile-Sprint,” the analyst said.

In other words, without that capacity created by the merger, T-Mobile is implying that the aforementioned level of 5G service is unfeasible.

The rural target market matters too, because the Federal Communications Commission — which would have to approve the merger — has a stated interest in improving broadband access to the underserved.

But T-Mobile’s home broadband plan highlights difficulties in serving those areas, and that’s why it doesn’t significantly threaten the traditional providers of home internet, McCormack said: cable companies.

“The initial markets targeting areas without meaningful competition, the throttling during congestion, the price point ($50/month) in markets likely covered by T-Mobile's 600Mhz spectrum … all point to the challenges wireless companies will face as the battle against cable heats up."

Guggenheim continues to view wireless as a "muted threat" to cable broadband, the analyst said.

Guggenheim maintains a Buy rating on T-Mobile with an $85 price target.