T-Mobile’s new Digits service was responsible for a sizable chunk of the carrier’s second-quarter customer additions, according to New Street Research. But that isn’t necessarily because the service attracted many new customers to T-Mobile.
Digits, which rolled out in late May, enables users to move phone numbers between devices and to use multiple numbers on a single device. Customers can extend their number to tablets, wearables and computers, enabling them to call or text between a variety of gadgets with a single number.
T-Mobile posted another successful quarter earlier this week, solidly beating estimates by adding 786,000 postpaid phone net additions. And Digits accounted for roughly 200,000 new additions, Jonathan Chaplin of New Street Research estimated.
“Digits accounting confounded what was an otherwise decent quarter,” Chaplin wrote in a note to investors this morning. “Absent this benefit, the company would have been roughly in line on net adds and ARPU (service revenue was in line).”
“Digits consists of two separate offerings: ‘Digits Talk & Text’ and ‘Data with Paired Digits,’” Chaplin continued. “’Digits Talk & Text’ allows customers to add additional phone numbers to an existing device; these numbers were accounted for as postpaid phone subscribers; the first phone number is free for customers on T-Mobile One Plus, but otherwise ‘Digits Tak & Text’ numbers cost $10/month each. “’Data with paired Digits’ allows existing phone numbers to be paired with additional devices (like wearables); these ‘Data with Paired Digits’ devices were not accounted for as postpaid phone subscribers.”
In other words, roughly 200,000 of T-Mobile’s postpaid net additions during the quarter weren’t truly new customers but simply users who added a phone number to a device already in service. And that would help explain why T-Mobile’s net postpaid adds significantly exceeded analysts’ estimates: Wells Fargo Securities, for instance, predicted T-Mobile would report 602,000 postpaid phone net additions during the quarter, and an average of other Wall Street analysts had pegged the figure at 596,000.
Chaplin said New Street’s estimate is based on the fact that T-Mobile noted Digits as “the second-biggest detractor” for a 52-cent decline in ARPU sequentially during the second quarter. “(W)hile the exact magnitude is unclear, we look at a range from $.10 to $.20 of ARPU impact to arrive at our ~200K estimate for implied ‘Digits talk & Text’ phone numbers that were included in the subscriber count,” he wrote.