T-Mobile USA Reports Third Quarter 2008 Results

T-Mobile USA, Inc. (T-Mobile USA) today reported third quarter 2008 results. At the end of the quarter, T-Mobile USA had 32.1 million customers, adding 670,000 net new customers during the third quarter, and OIBDA of $1.53 billion, up 8% compared to the third quarter of 2007.
"In the quarter, T-Mobile took giant steps forward in driving new innovations to meet the pressing needs of our customers," said Robert Dotson, President and CEO, T-Mobile USA. "We introduced our customers to the T-Mobile @Home(R) landline replacement service at a time when saving money is a top priority for American households. We also established our new nationwide high-speed 3G services, which will cover 120 cities by the end of November. This network introduction was accompanied by the unveiling of the T-Mobile G1 with Google, the world's first device built on the fully open Android operating platform giving consumers access to some of the most innovative mobile applications to ever come to market. These and other innovations are helping us aggressively compete as we debut new and craved-for services that truly meet customer needs and inspire greater long term loyalty to our brand."
"T-Mobile USA continues to be one of the strong growth drivers for Deutsche Telekom," said Rene Obermann, Chief Executive Officer, Deutsche Telekom. "With the introduction of its 3G network in the U.S. and the successful launch of the T-Mobile G1 with Google, T-Mobile USA is now in an excellent position to further leverage the enormous potential of mobile data in its market."

Customers
-- In the third quarter of 2008, T-Mobile USA added 670,000 net new
customers, up from 668,000 in the second quarter of 2008, and down
from 857,000 in the third quarter of 2007.
-- The number of net new customer additions was consistent
sequentially, despite higher gross customer additions. This is
primarily due to higher contract churn, as explained below. Gross
customer additions were higher both sequentially and compared to
the third quarter of 2007. This is a reflection of successful
products such as myFavessm, FlexPaysm
-- an innovative hybrid plan that combines elements of traditional
postpaid and prepaid plans, and T-Mobile @Home, a landline
replacement product that was launched at the beginning of the
third quarter of 2008.
-- Contract customer net additions decreased in the third quarter of
2008 making up almost 44% of customer growth, down from 80% in the
second quarter of 2008 and 65% in the third quarter of 2007.
-- Prepaid net additions were 377,000 in the third quarter of 2008,
up from 143,000 in the second quarter of 2008 and 300,000 in the
third quarter of 2007. The sequential increase in prepaid net
customer additions was due to improved prepaid churn and higher
reseller net customer additions. The majority of prepaid net
additions in the third quarter of 2008 were FlexPay no-contract
customers, which typically have a higher ARPU than legacy prepaid
customers, as discussed below.
-- myFaves continues to be very popular with our customers. At the
end of the third quarter of 2008 there were over 7 million myFaves
customers, up from 6.5 million at the end of the second quarter of
2008 and 3.5 million in the third quarter of 2007.
-- Contract customers comprised 83% of T-Mobile USA's total customer
base at September 30, 2008. T-Mobile USA ended the quarter with 32.1
million customers.

Churn
-- Contract customer churn was 2.4% in the third quarter of 2008, up
from 1.9% in the second quarter of 2008 and 2.0% in the third
quarter of 2007.
-- The sequential increase in contract churn was primarily due to
the continued impact of customers coming to the anniversary of their
two-year contract that was first introduced in April 2006. The
second quarter of 2008 was the first quarter these two-year
contracts could have expired. Competitive pressure also contributed
to the sequential increase in contract churn.
-- Blended churn, including both contract and prepaid customers, was
3.0% in the third quarter of 2008, up from 2.7% in the second
quarter of 2008 and 2.9% in the third quarter of 2007.

OIBDA and Net Income
-- T-Mobile USA reported OIBDA of $1.53 billion in the third quarter
of 2008, down from $1.58 billion in the second quarter of 2008 and
up from the $1.41 billion in the third quarter of 2007.
-- The sequential decrease in OIBDA was primarily due to higher
customer acquisition costs, as commissions expense increased due to
volumes, and higher general and administrative costs.
-- OIBDA margin was 31% in the third quarter of 2008, down from 32%
in the second quarter of 2008 and the third quarter of 2007.
-- Net income for the third quarter of 2008 was $442 million, down
from the $452 million in the second quarter of 2008 and $526 million
in the third quarter of 2007.

Revenue
-- Service revenues (as defined in Note 1 to the Selected Data,
below) were $4.91 billion in the third quarter of 2008, up from
$4.85 billion in the second quarter of 2008, and $4.33 billion in
the third quarter of 2007.
-- The increase in service revenues year over year was primarily due
to the growth in contract customers, including the impact of the
SunCom Wireless acquisition.
-- Total revenues, including service, equipment, and other revenues
were $5.51 billion in the third quarter of 2008, slightly up from
$5.47 billion in the second quarter of 2008 and $4.89 billion in the
third quarter of 2007.
-- The acquisition of SunCom, and its second full quarter
consolidation in T-Mobile USA's results, contributed $192 million to
total revenues in the third quarter.

ARPU
-- Blended Average Revenue Per User ("ARPU" as defined in note 1 to
the Selected Data, below) was $52 in the third quarter of 2008,
consistent with $52 in the second quarter and down from $53 in the
third quarter of 2007.
-- Contract ARPU was $55 in the third quarter of 2008, consistent
with the second quarter of 2008 and down from $57 in the third
quarter of 2007.
-- The decrease in contract ARPU year over year was primarily due to
lower usage based revenues from contract customers.
-- Prepaid ARPU was $24 in the third quarter of 2008, up from $23 in
the second quarter of 2008 and $18 in the third quarter of 2007.
-- The increase in prepaid ARPU is due to the success of higher ARPU
of FlexPay no-contract compared to legacy prepaid products.
-- Data services revenue (as defined in Note 1 to the Selected Data,
below) was $850 million in the third quarter of 2008, representing
17.3% of blended ARPU, or $8.90 per customer, compared with 16.6% of
blended ARPU, or $8.60 per customer in the second quarter of 2008,
and 15.4% of blended ARPU, or $8.10 per customer in the third
quarter of 2007. Data services revenue increased 28% year over year.
-- Growth in messaging revenue continued to be the most significant
driver of data ARPU, as customers continue to move towards
purchasing plans that include messaging, including our unlimited
voice and data plans. The total number of messages on the T-Mobile
USA network increased to almost 49 billion in the third quarter of
2008, compared to 41 billion in the second quarter of 2008 and 21
billion in the third quarter of 2007.
-- Strong GPRS / EDGE access and usage through continued growth in
converged device users was another significant driver for increased
data revenues.

CPGA and CCPU
-- The average cost of acquiring a customer, Cost Per Gross Add
("CPGA" as defined in note 4 to the Selected Data, below) was $290
in the third quarter of 2008, down from $320 in the second quarter
of 2008 and up from $280 in the third quarter of 2007.
-- The decrease in CPGA compared to the second quarter of 2008 is
primarily due to higher gross customer additions, in particular
lower advertising expense per customer.
-- Excluding the impact of SunCom, T-Mobile USA's CPGA in the third
quarter of 2008 would have been $280, consistent with the third
quarter of 2007.
-- The average cash cost of serving customers, Cash Cost Per User
("CCPU" as defined in note 3 to the Selected Data, below), was $25
per customer per month in the third quarter of 2008, consistent with
the second quarter of 2008 and lower than CCPU of $26 in the third
quarter of 2007.
-- The decrease in CCPU in the third quarter of 2008 versus the
third quarter of 2007 is primarily due to lower network costs per
customer, driven by lower roaming expense per customer.

Capital Expenditures
-- Cash capital expenditures (see note 7 to the Selected Data below)
were $956 million in the third quarter of 2008, compared with $1,062
million in the second quarter of 2008 and $500 million in the third
quarter of 2007.
-- The year over year increase in capital expenditures is primarily
due to the build out of T-Mobile USA's 3G (UMTS / HSDPA) network as
well as cash payment timing differences.
-- T-Mobile USA continued its commitment to improve coverage in the
third quarter of 2008, adding approximately 900 GSM/GPRS/EDGE new
cell sites, bringing the total number of cell sites at the end of
the quarter to 42,900.
-- T-Mobile USA ended the quarter with 14,700 3G capable cell sites
(included in the 42,900 total cell sites above).

Stick Together Highlights
-- On September 5, 2008, T-Mobile USA launched the T-Mobile products
and services in the previously branded SunCom markets, including
Puerto Rico. Additionally, all major SunCom systems have been
integrated into T-Mobile USA as of the end of the third quarter of
2008.
-- On October 17, 2008, T-Mobile USA, Inc. announced that it
continues to aggressively expand its third-generation (3G) wireless
broadband service in more than 120 major cities by the end of
November. On October 30, 2008, T-Mobile added Washington D.C. as the
latest major population center to benefit from T-Mobile's 3G service.
-- On September 23, T-Mobile USA announced the launch of the
world's first Android(TM)-powered mobile
phone in partnership with Google. Available in the fourth quarter
2008 only for T-Mobile customers in the USA, the T-Mobile G1
combines full touch-screen functionality and a QWERTY keyboard
with a mobile Web experience.
-- In order to provide more options to customers, on October 8,
T-Mobile began offering postpaid month-to-month rate plans without a
requirement for customers to sign an annual contract. All postpaid
rate plans including single line, FamilyTime, and myFaves are
available under this new service option.
-- In August, T-Mobile USA launched the feature of Family
AllowancesSM which allows parents to
give their family members an upfront monthly wireless allowance
that works on all the phones T-Mobile offers - virtually
eliminating the worry of surprise overages.

T-Mobile USA is the U.S. operation of Deutsche Telekom AG's (DT:
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DT 14.27, -0.36, -2.5%) Mobile Communications Business, and is a wholly-owned subsidiary of T-Mobile International. In order to provide comparability with the results of other US wireless carriers, all financial amounts are in US dollars and are based on accounting principles generally accepted in the United States ("GAAP"). T-Mobile USA results are included in the consolidated results of Deutsche Telekom, but differ from the information contained herein as Deutsche Telekom reports financial results in Euros and in accordance with International Financial Reporting Standards (IFRS).
This press release includes non-GAAP financial measures. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Reconciliations from the non-GAAP financial measures to the most directly comparable GAAP financial measures are provided below following Selected Data and the financial statements.

SELECTED DATA FOR T-MOBILE USA
(thousands) Q3 08 Q2 08 Q1 08 YE 07 Q4 07 Q3 07
Covered population(8) 286,000 284,000 284,000 284,000 284,000 283,000
Customers, end of period(2) 32,136 31,466 30,798 28,685 28,685 27,734
Thereof contract customers 26,539 26,246 25,721 23,914 23,914 23,181
Thereof prepaid customers 5,597 5,220 5,077 4,771 4,771 4,553
Net customer additions 670 668 981 3,644 951 857
Acquired customers - - 1,132 - - -
Minutes of use/contract customer/month 1,140 1,170 1,150 1,130 1,120 1,130
Contract churn 2.40% 1.90% 1.70% 1.90% 1.80% 2.00%
Blended churn 3.00% 2.70% 2.60% 2.80% 2.80% 2.90%
($)
ARPU (blended)(1, 9) 52 52 51 52 52 53
ARPU (contract) 55 55 55 57 56 57
ARPU (prepaid) 24 23 22 19 20 18
Cost of serving (CCPU)(3) 25 25 25 25 25 26
Cost per gross add (CPGA)(4) 290 320 300 300 300 280
($ million)
Total revenues 5,506 5,470 5,187 19,288 5,068 4,894
Service revenues(1, 9) 4,911 4,854 4,573 16,892 4,371 4,332
OIBDA(5) 1,531 1,583 1,441 5,350 1,327 1,412
OIBDA margin(6) 31% 32% 31% 31% 30% 32%
Capital expenditures(7) 956 1,062 690 2,677 1,009 500
Cell sites on-air(10) 42,900 42,000 41,000 37,900 37,900 37,000

Since all companies do not calculate these figures in the same manner, the information contained in this press release may not be comparable to similarly titled measures reported by other companies.

1 Average Revenue Per User ("ARPU") represents the average monthly
service revenue we earn from our customers. ARPU is calculated by
dividing service revenues for the specified period by the average
customers during the period, and further dividing by the number of
months in the period. We believe ARPU provides management with
useful information to evaluate the recurring revenues generated from
our customer base.
Service revenues include contract, prepaid, and roaming and other
service revenues, and do not include equipment sales and other
revenues. Data services revenues (including messaging and
non-messaging revenue) is a component of service revenues. Within
the consolidated financial statements below, other revenues include
co-location rental income and wholesale revenues from the usage of
our network in California, Nevada, and New York by AT&T customers,
among other items, and are therefore not included in ARPU.
2 A customer is defined as a SIM card with a unique mobile identity
number which generates revenue. Contract customers and prepaid
customers include FlexPaySM customers
depending on the type of rate plan selected. FlexPay customers
with a contract are included in contract customers, and FlexPay
customers without a contract are included in prepaid customers.
3 The average cash cost of serving customers, or Cash Cost Per User
("CCPU") is a non-GAAP financial measure and includes all network
and general and administrative costs as well as the subsidy loss
unrelated to customer acquisition. Subsidy loss unrelated to
customer acquisition includes upgrade handset costs for existing
customers offset by upgrade equipment revenues and other related
direct costs. This measure is calculated as a per month average by
dividing the total costs for the specified period by the average
total customers during the period and further dividing by the number
of months in the period. We believe that CCPU, which is a measure of
the costs of serving a customer, provides relevant and useful
information and is used by our management to evaluate the operating
performance of our business.
4 Cost Per Gross Add ("CPGA") is a non-GAAP financial measure and is
calculated by dividing the costs of acquiring a new customer,
consisting of customer acquisition costs plus the subsidy loss
related to customer acquisition for the specified period, by gross
customers added during the period. Subsidy loss related to customer
acquisition consists primarily of the excess of handset and
accessory costs over related revenues incurred to acquire new
customers. We believe that CPGA, which is a measure of the cost of
acquiring a customer, provides relevant and useful information and
is used by our management to evaluate the operating performance of
our business.
5 Operating Income Before Interest, Depreciation and Amortization
("OIBDA") is a non-GAAP financial measure, which we define as
operating income before depreciation and amortization. In a
capital-intensive industry such as wireless telecommunications, we
believe OIBDA, as well as the associated percentage margin
calculation, to be meaningful measures of our operating
performance. OIBDA should not be construed as an alternative to
operating income or net income as determined in accordance with
GAAP, as an alternative to cash flows from operating activities as
determined in accordance with GAAP or as a measure of liquidity.
We use OIBDA as an integral part of our planning and internal
financial reporting processes, to evaluate the performance of our
business by senior management and to compare our performance with
that of many of our competitors. We believe that operating income
is the financial measure calculated and presented in accordance
with GAAP that is the most directly comparable to OIBDA. OIBDA is
not adjusted for integration costs of SunCom.
6 OIBDA margin is a non-GAAP financial measure, which we define as
OIBDA (as described in note 5 above) divided by total revenues less
equipment sales.
7 Capital expenditures consist of amounts paid by T-Mobile USA for
purchases of property and equipment.
8 The covered population statistic represents T-Mobile USA's GSM /
GPRS / EDGE 1900 voice and data network coverage, combined with
roaming and other agreements.
9 Data ARPU is defined as total data revenues from contract customers,
prepaid customers, and other data revenues, divided by average total
customers during the period. Wi-Fi revenues are shown as a component
of data revenues. The relative fair value of data revenues from
unlimited voice and data plans are included in total data revenues.
10 Cell sites are defined as the total number of sites in service at
the end of the period, excluding small low power, low gain access
sites. A site is in service when all equipment is installed and the
site is integrated into the network.

T-MOBILE USA
Condensed Consolidated Balance Sheets
(dollars in millions)
(unaudited)
September 30, December 31,
2008 2007
ASSETS
Current assets:
Cash and cash equivalents $ 160 $ 64
Short-term affiliate loan receivable 75 1,075
Short-term investment 4 -
Accounts receivable, net of allowances of $390 and $272, 2,658 2,617
respectively
Accounts receivable from affiliates 19 274
Inventory 865 990
Current portion of net deferred tax assets 1,035 994
Licenses held for exchange 5 1
Other current assets 623 538
Total current assets 5,444 6,553
Property and equipment, net of accumulated depreciation of $10,317 11,990 11,258
and $9,788, respectively
Goodwill 12,011 10,701
Spectrum licenses 15,127 14,645
Other intangible assets, net of accumulated amortization of $530 244 47
and $489, respectively
Long term investments 132 -
Other assets 143 155
$ 45,091 $ 43,359
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 3,354 $ 3,790
Current payables to affiliates 1,312 1,127
Other current liabilities 419 380
Total current liabilities 5,085 5,297
Long-term payables to affiliates 6,625 6,712
Deferred tax liabilities 2,063 1,622
Other long-term liabilities 1,144 915
Total long-term liabilities 9,832 9,249
Minority interest in equity of consolidated subsidiaries 93 89
Commitments and contingencies
Stockholder's equity:
Common stock 44,470 44,469
Accumulated deficit (14,389 ) (15,745 )
Total stockholder's equity 30,081 28,724
$ 45,091 $ 43,359

T-MOBILE USA
Condensed Consolidated Statements of Operations
(dollars in millions)
(unaudited)
Quarter Ended Quarter Ended Quarter Ended
September 30, June 30, September 30,
2008 2008 2007
Revenues:
Contract $ 4,342 $ 4,321 $ 3,938
Prepaid 382 359 238
Roaming and other service 187 174 156
Equipment sales 512 529 480
Other 83 87 82
Total revenues 5,506 5,470 4,894
Operating expenses:
Network 1,284 1,271 1,130
Cost of equipment sales 828 834 733
General and administrative 957 906 818
Customer acquisition 906 876 801
Depreciation and amortization 678 667 643
Total operating expenses 4,653 4,554 4,125
Operating income 853 916 769
Other expense, net (128 ) (185 ) (43 )
Income before income taxes 725 731 726
Income tax expense (283 ) (279 ) (200 )
Net income $ 442 $ 452 $ 526

T-MOBILE USA
Condensed Consolidated Statements of Cash Flows
(dollars in millions)
(unaudited)
Quarter Ended Quarter Ended
September 30, September 30,
2008 2007
Operating activities:
Net income $ 442 $ 526
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 678 643
Income tax expense 283 200
Other, net 130 108
Changes in operating assets and liabilities:
Accounts receivable (93 ) (162 )
Inventory (76 ) (93 )
Other current and non-current assets (15 ) (56 )
Accounts payable and accrued liabilities 132 495
Net cash provided by operating activities 1,481 1,661
Investing activities:
Purchases of property and equipment (956 ) (500 )
Purchases of intangible assets (33 ) (16 )
Short-term affiliate loan receivable (475 ) (1,150 )
Other, net (1 ) -
Net cash used in investing activities (1,465 ) (1,666 )
Financing activities:
Long-term debt borrowings from affiliates (825 ) -
Long-term debt borrowings from affiliates 750 -
Other, net 1 (1 )
Net cash used in financing activities (74 ) (1 )
Change in cash and cash equivalents (58 ) (6 )
Cash and cash equivalents, beginning of period 218 60
Cash and cash equivalents, end of period $ 160 $ 54
Non-cash investing and financing
activities with affiliates:
In the third quarter of 2008, T-Mobile USA remitted $475 million
to affiliates as a short term receivable. $400 million of the cash
outflow, together with $825 million cash was used during the
period as settlement of $1,225 million debt with affiliates in
line with the repayment schedule.

T-MOBILE USA
Reconciliation of Non-GAAP Financial Measures to GAAP Financial
Measures
(dollars in millions, except for CPGA and CCPU)
(unaudited)
OIBDA can be reconciled to our operating income as follows:
Q3 Q2 Q1 YE Q4 Q3
2008 2008 2008 2007 2007 2007
OIBDA $ 1,531 $ 1,583 $ 1,441 $ 5,350 $ 1,327 $ 1,412
Depreciation and (678 ) (667 ) (678 ) (2,609 ) (681 ) (643 )
amortization
Operating income $ 853 $ 916 $ 763 $ 2,741 $ 646 $ 769

The following schedule reflects the CPGA calculation and provides
a reconciliation of cost of acquiring customers used for the CPGA
calculation to customer acquisition costs reported on our
condensed consolidated statements of operations:
Q3 Q2 Q1 YE Q4 Q3
2008 2008 2008 2007 2007 2007
Customer acquisition costs $ 906 $ 876 $ 861 $ 3,274 $ 901 $ 801
Plus: Subsidy loss (512 ) (529 ) (534 ) (2,061 ) (620 ) (480 )
Equipment sales
Cost of equipment sales 828 834 832 3,120 879 733
Total subsidy loss 316 305 298 1,059 259 253
Less: Subsidy loss unrelated (178 ) (169 ) (173 ) (623 ) (157 ) (143 )
to customer acquisition
Subsidy loss related to 138 136 125 436 102 110
customer acquisition
Cost of acquiring customers $ 1,044 $ 1,012 $ 986 $ 3,710 $ 1,003 $ 911
CPGA ($ / new customer added) $ 290 $ 320 $ 300 $ 300 $ 300 $ 280

T-MOBILE USA
Reconciliation of Non-GAAP Financial Measures to GAAP Financial
Measures
(dollars in millions, except for CPGA and CCPU)
(unaudited)
The following schedule reflects the CCPU calculation and provides
a reconciliation of the cost of serving customers used for the
CCPU calculation to total network costs plus general and
administrative costs reported on our condensed consolidated
statements of operations:
Q3 Q2 Q1 YE Q4 Q3
2008 2008 2008 2007 2007 2007
Network costs $ 1,284 $ 1,271 $ 1,166 $ 4,344 $ 1,125 $ 1,130
General and administrative 957 906 887 3,200 836 818
Total network and general and administrative costs 2,241 2,177 2,053 7,544 1,961 1,948
Plus: Subsidy loss unrelated to customer acquisition 178 169 173 623 157 143
Total cost of serving customers $ 2,419 $ 2,346 $ 2,226 $ 8,167 $ 2,118 $ 2,091
CCPU ($ / customer per month) $ 25 $ 25 $ 25 $ 25 $ 25 $ 26

About T-Mobile USA:
Based in Bellevue, WA, T-Mobile USA, Inc. is the US operation of Deutsche Telekom AG's (DT:
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Sponsored by:
DT 14.27, -0.36, -2.5%) Mobile Communications Business, and is a wholly-owned subsidiary of T-Mobile International.
T-Mobile USA's innovative wireless products and services help empower people to connect effortlessly to those who matter most. T-Mobile USA's GSM/GPRS/EDGE 1900 voice and data network, when combined with roaming and other agreements, reaches 286 million people in the U.S. In addition, T-Mobile USA operates one of the largest Wi-Fi (802.11b) wireless broadband (WLAN) networks in the country (including roaming sites), available in approximately 9,700 convenient public access locations nationwide. For more information, visit the company website at www.t-mobile.com.
About T-Mobile International:
T-Mobile International is one of the world's leading mobile communications businesses. As part of the Deutsche Telekom AG (DT:
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Sponsored by:
DT 14.27, -0.36, -2.5%) group, T-Mobile International concentrates on the key markets in Europe and the United States.
At the end of the third quarter of 2008, approximately 127 million mobile customers were served by the mobile communications segments of the Deutsche Telekom group, all over a common technology platform based on GSM, the world's most widely used digital wireless standard.
For more information about T-Mobile International please visit www.t-mobile.net. For further information on Deutsche Telekom, please visit www.telekom.de/investor-relations.
SOURCE: T-Mobile USA, Inc.