T-Mobile thrives on prepaid growth in Q3, but drops 492K postpaid subs

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T-Mobile USA reported a net gain in subscribers for the third quarter, as its prepaid additions outweighed continued losses in postpaid subscribers. The carrier suffered from the launch of Apple's (NASDAQ:AAPL) iPhone 5 in the quarter, and it remains the only Tier 1 U.S. operator that does not sell the device.

Deutsche Telekom, which owns T-Mobile, reported an $8.84 billion loss, driven mainly by a $9.4 billion write-down of the U.S. unit. The write-down was triggered by DT's announcement in early October that it will to perform a reverse merger and essentially have T-Mobile acquire flat-rate player MetroPCS (NYSE:PCS). DT plans to own 74 percent of the combined, publicly traded entity, though some analysts see the deal as a way for DT to eventually exit the U.S. market.

T-Mobile USA will be strengthened by the deal, which will give it more spectrum and the ability to deploy 20x20 MHz LTE channels in 90 percent of the top 25 U.S. markets using 1700 MHz AWS spectrum. The deal is expected to close sometime in the second quarter of 2013.

Despite the future outlook, the carrier continued to struggle with postpaid defections in the quarter. The lack of the iPhone continues to hurt the operator, though T-Mobile is reorganizing its network to make up for that deficit as part of a $4 billion network modernization plan. The carrier has been busy refarming its 1900 MHz PCS spectrum to deploy HSPA+ services in that spectrum band, and on Wednesday it announced that customers in the Baltimore, Houston and Washington, D.C., metro areas will now have access to HSPA+ services on the network. T-Mobile had already refarmed the spectrum in Las Vegas and Kansas City, and the carrier plans to continue refarming across its network later this year and into next.    

T-Mobile has been highlighting those network changes coupled with its recently revived unlimited data plan for postpaid smartphones. In September the carrier launched its "Unlimited Nationwide 4G Data" plan. The plan costs $20 per month when added to one of the company's postpaid "Value" voice and text plans (which do not include a smartphone subsidy) or $30 per month when added to one of its postpaid "Classic" voice and text plans (which do include subsidized smartphones). T-Mobile's new unlimited data plans are only available for smartphones and are not available with prepaid rate plans, nor are they available for other devices like tablets. Further, smartphone tethering is be supported by the new unlimited plans.

"We continue to make solid progress with our Challenger Strategy, as evidenced by our strong performance in prepaid services, the growing attractiveness of our Value and Unlimited plans, the execution of our network modernization program and the expansion of our popular handset portfolio," CEO John Legere said in a statement. "Our strategy, including our ability to deliver more affordable, faster 4G services to more customers in more metropolitan areas, will be significantly accelerated by our proposed combination with MetroPCS. With MetroPCS, we aim to become the industry's leading value carrier--for both prepaid and contract service offerings--with the scale, spectrum and financial resources to aggressively compete with the other national carriers."

Here is a breakdown of T-Mobile's key quarterly metrics:

Subscribers: T-Mobile gained 160,000 net subscribers in the quarter, compared to 205,000 net subscriber losses in the second quarter and 126,000 net subscriber additions in the year-ago period. In the third quarter of 2012 the carrier benefited from net additions of 365,000 branded prepaid customers, but the company lost 492,000 branded postpaid customers. The postpaid losses were an improvement from the 557,000 postpaid defections in the second quarter but higher than the 389,000 it had in the year-ago period. For the third quarter of 2012, T-Mobile made up the balance of its subscriber gains by adding 168,000 M2M connections and 119,000 MVNO customers. 

ARPU: T-Mobile's branded postpaid average revenue per users was $56.59 down from $58.50 in the year-ago period. T-Mobile said the drop was related to lower voice revenue, impacted by the shift to its Value plans, which results in recording lower service revenues while recognizing higher equipment revenues at the time of sale. Value plans now account for nearly one-quarter of branded contract customers. Branded prepaid ARPU jumped $27.35, up 12.5 percent from $24.31 in the year-ago period. The company said the prepaid increase was due to the continued success of its Monthly 4G products, which have higher ARPU than the company's pay-as-you-go prepaid products.

Churn: Branded contract churn was 2.3 percent, down from 2.6 percent in the year-ago period. Branded prepaid churn was 6.2 percent down from 6.5 percent in the year-ago quarter.

Financials: T-Mobile posted a $7.8 billion net loss for the quarter, compared to a profit of $332 million in the quarter. However, that loss reflected an impairment assessment related to the MetroPCS deal, because T-Mobile recorded a non-cash impairment charge of $8.1 billion related to the deal. T-Mobile reported adjusted OIBDA of $1.2 billion in the third quarter of 2012, down 8.4 percent from the second quarter of 2012 and down 15.2 percent from the third quarter of 2011.

Total revenues clocked in at $4.9 billion, a decrease of 6.4 percent year-over-year, which T-Mobile said reflected higher equipment revenues from the company's new Value plans; Total service revenue was $4.3 billion, a decrease of 8.7 percent from the year-ago period.

For more:
- see this release
- see this report (PDF)
- see this T-Mobile blog post
- see this Bloomberg article
- see this CNET article

Special Report: Wireless in the third quarter of 2012

Related Articles:
T-Mobile, MetroPCS ask FCC for deal approval
DT expects T-Mobile/MetroPCS deal to close in Q2
T-Mobile promises 20x20 MHz LTE network with MetroPCS spectrum
Regulators likely to smile on merger of T-Mobile and MetroPCS
Deutsche Telekom's T-Mobile USA to merge with MetroPCS
T-Mobile continues to bleed postpaid subs in Q2

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