T-Mobile's 'blow-out:' 2.2M new customers and 10.6% revenue growth in Q1

T-Mobile's first-quarter earnings topped elevated expectations, beating Wall Street estimates almost across the board. The carrier also bumped up its guidance for the rest of the year. And it shored up its financing in advance of the crucial incentive auction of 600 MHz spectrum.

The nation's third-largest carrier added a total of 2.2 million customers during the quarter, marking its twelfth consecutive quarter of more than 1 million total customer additions. It reported 877,000 branded postpaid phone net adds, easily beating analysts' estimates in the range of 800,000, and T-Mobile's postpaid phone ARPU of $46.21 also topped forecasts. T-Mobile's branded postpaid phone churn of 1.33 percent was down three basis points from the previous quarter and near the record 1.3 percent the carrier enjoyed a year prior.

Meanwhile, T-Mobile's revenue grew 10 percent year over year to $8.6 billion, and service revenue of $6.58 billion marked a 13 percent annual growth rate and slightly exceeded estimates. So while some of its competitors are honing their focus on lucrative postpaid phone customers at the risk of sacrificing some market share, T-Mobile once again delivered both solid financials and strong subscriber gains.

"We continue to lead the industry in net customer additions," CEO John Legere said during a conference call with analysts to discuss the carrier's earnings, "but we're also likely to come in way ahead of the pack in service revenue and adjusted EBITDA growth."

The carrier's capital expenses came in at $1.34 billion, substantially higher than expected, due to T-Mobile's ongoing rollout of 700 MHz spectrum, however.

T-Mobile also said it gained access to another $1.35 billion in funding from parent Deutsche Telekom, bringing its total available funding from its parent company to $3.35 billion. And CFO Braxton Carter said the carrier has access to much more cash as it prepares to bid on TV broadcasters' airwaves in the coming months via the FCC's incentive auction.

"We're in the quiet period on the auction and really not in a position where we can discuss anything other than prior comments," Carter told analysts on the call. "But we were very clear in our public disclosure leading up to this quiet period about what our total envelope was…. We've raised a total of $9 billion and then discussed the minimum liquidity requirements of the company. So I'll leave it at that."

Here's a closer look at some key quarterly metrics from T-Mobile:

Subscribers: While the U.S. smartphone market is clearly plateauing, T-Mobile continues to poach customers from its rivals, with former AT&T and Verizon customers accounting for 80 percent of all T-Mobile postpaid portings, Legere said. T-Mobile also added a record 807,000 net prepaid additions during the quarter, marking an eleven-fold year-over-year increase. The carrier sold or leased 9.4 million devices during the period, including 8.8 million phones.

Financials: Total revenues grew by 10.6 percent year over year, and adjusted EBITDA -- aside from a one-time spectrum gain of $636 million -- grew 52.2 percent annually. Net income was $479 million, a reversal of T-Mobile's net loss of $63 million during the same period last year.

LTE: T-Mobile continued to tout its ongoing LTE build-out as well as its strategy of leveraging its expanding network by growing its retail presence in regions where it previously had little distribution. T-Mobile said it covers 308 million POPs with LTE (including partner coverage), and its 700 MHz spectrum covers roughly 194 million people in more than 340 markets. The operator struck agreements "with multiple parties" to acquire more 700 MHz licenses in a move that will see its total low-band holdings increase coverage from 210 million POPs to 258 million POPs upon closing. And 53 percent of all of T-Mobile's call traffic is routed over VoLTE, the company said, which allows it to refarm spectrum previously allocated to legacy voice calling services. And that, executives said, will help add capacity.

IoT and 5G: T-Mobile once again knocked Verizon's high-profile push into 5G, saying that while T-Mobile is also testing next-generation technologies it is also focused on using existing network technologies for applications such as providing connectivity for the IoT. "What you'll see us do this year is, our GSM network, it covers very little traffic, it will become a thin layer" for M2M connectivity and "non-mobility GSM," CTO Neville Ray said. "There's a lot of customers that want that; it's actually more beneficial" for those use cases than next-generation networks.

Summary: Analysts almost unanimously agree that T-Mobile's future for at least the next year or two looks bright, even in an ultra-competitive and saturated market. "To be sure, there is some seasonality to price competition; during first quarter tax refund season, competition shifts, at least to a degree, from post-paid to pre-paid," analysts at MoffettNathanson wrote. "Still, after Verizon reported what was at least a directional improvement in ARPU (still declining, but at a slower rate), T-Mobile has actually reported a real improvement in ARPU, at least on a like-for-like basis. Nothing matters in telecom more than pricing. A return to positive growth, even if miniscule, goes a long way towards refuting the premise that T-Mobile is excessively discounting. And taken with T-Mobile's blow-out subscriber results, it speaks to waning efficacy for Sprint's half-off antics."

For more:
- see this T-Mobile press release
- listen to this T-Mobile webcast

Special Report: Wireless in the first quarter of 2016

Related articles:
Verizon emphasizes cost cuts amid fairly solid Q1 earnings, revenues of $22B
Verizon notches 1.52M net adds in Q4, vows to be first to deploy 5G
T-Mobile to be the only major U.S. carrier to see postpaid net phone gains in Q1, Wells Fargo predicts
John Legere: T-Mobile 'took 108% of the industry's postpaid phone growth last year'
T-Mobile jabs at Verizon in new ad that highlights its 700 MHz LTE coverage expansion

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