T-Mobile adds 851K postpaid phone users in Q3 as M&A speculation heats up again

T-Mobile CEO John Legere (center). Image: T-Mobile

T-Mobile once again posted an impressive quarter, adding 851,000 net postpaid phone customers and raising its 2016 guidance for both subscriber growth and adjusted EBITDA.

All of which makes it a very attractive target as consolidation in the wireless and wireline market begins to heat up.

The third-largest carrier in the U.S. added a total of 969,000 net postpaid customers in the most recent quarter, up from 890,000 in the second quarter, and it saw 684,000 net prepaid adds, marking its second-best quarter ever. T-Mobile earned 27 cents per share on an adjusted basis, according to Thomson Reuters’ figures, beating analysts’ average estimates of 22 cents per share.

“In the third quarter, when Verizon and AT&T each reported losses of postpaid phone subscribers and negative wireless revenue growth, T-Mobile quietly once again gained both market share and market strength, capturing more than all of the industry’s revenue growth and subscriber growth in Q3,” Craig Moffett of MoffettNathanson wrote in a research note to investors. “T-Mobile’s revenues have grown by 17.8 percent year over year. And while AT&T’s debt load is ballooning to mind-boggling proportions and its credit metrics are deteriorating, T-Mobile’s balance sheet is on an improbably trajectory to be the industry’s strongest.”

Here's a close look at some key third-quarter metrics from T-Mobile:

Subscribers: T-Mobile added more than 2 million net customers, marking its 14th straight quarter of more than 1 million net adds, and it continued to make gains in both the postpaid and prepaid markets. Overall churn came in at 1.32 percent, up from 1.27 percent during the previous quarter but better than the 1.4 percent predicted by analysts at Wells Fargo Securities. “Nearly four into their Uncarrier transformation, T-Mobile’s total branded postpaid base is still growing at a remarkable 9.3 percent,” MoffettNathanson noted.

Financials: The operator posted $7.1 billion in service revenues, up more than 13 percent year over year, and its $9.2 billion in total revenues marked an increase of 17.8 percent over the same period last year. Service revenue was $7.13 billion, outpacing Wells Fargo’s estimate of $7.1 billion, and quarterly net income of $366 million was up significantly over the $138 million the company reported a year ago.

Network: T-Mobile said its LTE network now covers 312 million POPs, which it claims is 99.7 percent of the number Verizon’s network reaches. Its “Extended Range LTE” – which is the carrier’s brand for services offered on its 700 MHz A-Block spectrum – now covers 225 million people in 366 markets, and its Wideband LTE service reaches 231 million people. The carrier also continued to tout its progress in deploying technologies including VoLTE, 4x4 MIMO, 256 QAM and carrier aggregation.

Outlook: Perhaps most notable was T-Mobile’s move to increase guidance both for 2016 regarding both subscribers and finances. The operator said net postpaid additions for the full year are now expected to be between 3.7 million and 3.9 million, up from the previous guidance of 3.4 million to 3.8 million. Adjusted EBITDA for 2016 was increased from a range of $4.5 billion to $4.8 billion to between $10.2 billion and $10.4 billion.

Summary: T-Mobile continues to gain ground on both Verizon and AT&T as the two larger carriers look to expand beyond their traditional wireless businesses into the much broader world of digital media and advertising. T-Mobile has long been at the center of rumors of a potential merger or acquisition – AT&T was forced to pull the plug on a proposed $39 billion takeover in 2011 when federal regulators balked at the deal – and that talk is heating up once again in the wake of AT&T’s effort to acquire Time Warner. Such a tie-up isn’t likely to occur in coming weeks given the ongoing incentive auction and upcoming presidential election, but as 2017 approaches, T-Mobile has become a more attractive dance partner than ever.

“The AT&T/ Time Warner transaction announced over the weekend may very well increase the odds of a TMUS bid sooner rather than later – history has shown that after one large deal is announced, a flurry of deal-making activity is often quick to follow as other players adapt to a changing landscape,” New Street Research analysts wrote. “If M&A takes longer to materialize, we still see a path to share repurchases and returns to equity holders as early as next year."