T-Mobile US (NYSE:TMUS) continued its surging momentum in the first quarter, recording its best ever quarter in terms of branded postpaid subscriber additions largely on the back of the offering the carrier launched in January to pay off the Early Termination Fees of customers who switched over from other carriers.
In all, T-Mobile added 2.4 million total customers in the quarter, its first quarter ever with more than 2 million total customer additions. The number included total branded net additions of 1.8 million and branded postpaid net additions of more than 1.3 million.
T-Mobile easily outpaced all its rivals in terms of adding lucrative postpaid customers. AT&T Mobility (NYSE: T) surprised the market by reporting 625,000 new net postpaid customers in the first quarter, Verizon Wireless (NYSE: VZ) had 539,000 postpaid additions in the quarter, and Sprint (NYSE: S) reported that it lost 231,000 postpaid customers in the period.
"T-Mobile had an unusually strong first quarter driven by ETF payments," wrote New Street Research analyst Jonathan Chaplin. "While we expect T-Mobile to continue to grow, this is the best net add quarter we are likely to see from T-Mobile for a while."
However, T-Mobile's offer to pay up to $650 in ETFs did come at a steep cost--T-Mobile reported another quarterly financial loss.
"We are clearly proving we can accelerate growth," T-Mobile CEO John Legere said on the company's earnings conference call. He said T-Mobile would continue looking to solve customer pain points through its "uncarrier" initiatives. Indeed, T-Mobile raised its customer expectations for 2014 to between 2.8 million and 3.3 million branded postpaid net additions, up from the guidance of 2 million to 3 million it gave in February.
Here is a breakdown of T-Mobile's first-quarter results:
Subscribers: Of its 1.32 million branded postpaid additions, T-Mobile had more than 1.2 million phone net additions--unlike its rivals, T-Mobile has not been banking on tablet additions for growth. T-Mobile said around 21 percent of its branded postpaid gross subscriber additions took the ETF offer in the first quarter.
The company added 465,000 branded prepaid net customer additions in the first quarter, which T-Mobile said was driven by the success of MetroPCS and growth in the 30 expansion markets launched in 2013. The carrier added 383,000 customers from its MVNOs, which include Solavei, Ultra Mobile and others, as well as 220,000 M2M customers. T-Mobile ended the quarter with 49.1 million total customers. In all customer segments--branded postpaid, branded prepaid and wholesale--T-Mobile saw year-over-year improvements in its subscriber numbers.
Legere said the quarter's results showed that American consumers are getting just "a small taste of what real competition looks like" and that it is a "fantastic" time in the industry. However, he faulted T-Mobile's larger competitors for making small price adjustments or temporary offers, perhaps alluding to price changes AT&T and Verizon made in the quarter to their shared data plans and Sprint's identical ETF offer, which Sprint introduced in early April that runs through May 8. "It's a strange period where they can't just switch" and change their business models, he said.
T-Mobile executives also addressed investors' concerns that the company is gaining market share at the expense of profit. "There's no expectations on our part to sacrifice profitability," Legere said.
T-Mobile CFO Braxton Carter said that the ETF offer was introduced in the first part of the year because attracting high-quality customers early in the year will pay dividends for T-Mobile's results later in the year. T-Mobile CMO Mike Sievert echoed that and said the company is "not buying growth" in an uneconomic way. He said customers who are coming over on the ETF offer have higher credit ratings, use more data and make higher monthly device payments on equipment installment plans. He said the carrier is "pleased with the economic system that we have going right now."
LTE: T-Mobile said it now covers 220 million POPs with LTE and aims to cover 250 million by the end of 2014. T-Mobile said it now has 10x10 MHz LTE deployments in 43 of the top 50 metro areas, 15x15 MHz LTE deployments in nine metro areas and will have 19 by year-end. And T-Mobile said it deployed 20x20 MHz LTE in North Dallas and Detroit and will have seven such deployments by year-end--the carrier said the technology could support download speeds up to 147 Mbps.
T-Mobile also just recently closed its deal to acquire 700 MHz A Block spectrum from Verizon, which it will put into service late this year for LTE. In a company blog post, T-Mobile CTO Neville Ray wrote that "with this A-Block deal complete, our new low-band spectrum will be another powerful addition to our ambitious network plans, substantially improving in-building 4G LTE coverage as well as expanding coverage beyond major population centers."
MetroPCS: T-Mobile's integration of the MetroPCS customer base and network it acquired last spring is chugging along: Fully 53 percent MetroPCS customers had handsets that work on T-Mobile's GSM-based network at the end of the first quarter. More than 50 percent of MetroPCS' spectrum has been refarmed and integrated into T-Mobile's network.
T-Mobile earlier this year announced it would accelerate the shutdown of MetroPCS' CDMA network by closing three markets this year instead of next year--already the carrier plans to shutter the New England and Las Vegas CDMA markets by the second quarter. Today T-Mobile announced it may increase the number of CDMA market shutdowns this year, and said it would provide details on the effort later this year.
Smartphones: T-Mobile said it sold a record 6.9 million smartphones in the quarter. The carrier said 81 percent of its total branded customer base had a smartphone at the end of the quarter, up from 79 percent at the end of the fourth quarter of 2013.
Churn: T-Mobile's branded postpaid churn was a record low 1.5 percent, down from 1.9 percent in the year-ago period.
ARPU: T-Mobile said branded postpaid average revenue per user for the first quarter fell quarter-over-quarter by $0.69 or 1.4 percent to $50.01, which T-Mobile counted as an improvement compared to the quarter-over-quarter decline of 2.9 percent in the fourth quarter of 2013. The decline is due to T-Mobile's Value and Simple Choice plans, introduced last year.
T-Mobile said that 75 percent of its branded postpaid customers were on its Value or Simple Choice plans at the end of the first quarter, up from 69 percent at the end of the fourth quarter of 2013. T-Mobile continues to expect 85 and 90 percent of its branded postpaid customers to be on the plans by the end of 2014.
Branded prepaid ARPU for the first quarter increased by $0.25 or 0.7 percent to $36.09 compared to the fourth quarter of 2013.
Financials: T-Mobile's customer acquisitions came at a cost. The carrier swung to a net loss of $151 million for the first quarter, down from a profit of $107 million in the year-ago period. The company reported adjusted EBITDA of $1.09 billion for the first quarter, down 26 percent from $1.47 billion a year earlier, including earnings from MetroPCS before the companies merged last year. T-Mobile reported a wireless margin of 20 percent, down from 29 percent a year ago and weaker than the 22.43 percent analysts had been expecting, according to a Bloomberg survey of eight analysts.
Total revenue came in at $6.87 billion, up 15.3 percent year-over-year. Service revenues totaled $5.33 billion, up 4.5 percent year-over-year.
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