T-Mobile US (NYSE:TMUS) said it now expects to add 3.4 million to 3.9 branded postpaid net customers in 2015, up from the company's previous guidance of between 3 million and 3.5 million, which it issued in April.
The carrier reported another strong quarter of subscriber growth and also delivered on profitability. T-Mobile had pre-announced its subscriber results earlier this month and so investors were keen to learn of the carrier's financials. "With T-Mobile's (blowout) subscriber growth having already been reported for Q2, profitability was all that was left to learn today… and investors will surely view today's report as very good news indeed," MoffettNathanson analyst Craig Moffett wrote in a research note. "Broader profitability metrics (EBITDA, earnings, and free cash flow) were all in-line or better."
While speculation has swirled over whether Dish Network (NASDAQ: DISH) and T-Mobile will strike some kind of deal, during the company's earning conference call, T-Mobile CEO John Legere made it clear, as he did on T-Mobile's last earnings call in April, that he is open to partnering with many different companies. In several years, he said, "we will think it was completely humorous that we believed the wireless industry was four carriers that needed to be protected" in the current industry structure.
Companies like Google (NASDAQ: GOOG) and Comcast (NASDAQ: CMCSA) are going to enter the wireless market in the next few years, and T-Mobile is open to partnering or allying with them, Legere said.
When asked about Verizon Wireless' (NYSE: VZ) forthcoming over-the-the-top mobile video service, which is set to debut later this summer, T-Mobile CTO Neville Ray said that video is extremely important to T-Mobile and that it's the top application and source of traffic on T-Mobile's network.
"The question is this: Do people want their wireless carriers to curate their video options?" he asked. If they do, "we'll be there." Ray said that rather than "gobbling up" companies, as Verizon has done with AOL, T-Mobile will listen to its customers.
Here is a breakdown of T-Mobile's first-quarter results:
Subscribers: T-Mobile said it added 2.1 million net customer additions during the period--of which fully 1 million were customers on valuable postpaid plans. It was T-Mobile's ninth straight quarter of more than 1 million total net customer adds and fourth straight of adding at least 1 million postpaid customers. The carrier said that it added 760,000 branded postpaid phone customers and expects to capture all of the industry postpaid phone growth in the quarter. T-Mobile added 248,000 branded postpaid mobile broadband customers, down from 329,000 in the second quarter of 2014 but up from 134,000 in the first quarter of 2015.
T-Mobile added 178,000 branded prepaid customers in the second quarter compared to 102,000 a year ago and 73,000 in the first quarter of 2015.
The carrier added 919,000 MVNO customers in the quarter but lost 33,000 M2M customers. Sievert said the M2M losses were mainly because T-Mobile told M2M customers this quarter that in 2016 it will be dedicating less spectrum to 2G and EDGE services and more to LTE, causing many 2G M2M customers to move off the network. However, he said going forward, T-Mobile plans to put more M2M customers on its LTE network.
Financials: T-Mobile said total revenues for the quarter were $8.2 billion, up 14 percent year-over-year. The carrier had $6.1 billion service revenues, up 12 percent from a year ago. The company reported $1.8 billion in adjusted EBITDA, up 25 percent year-over-year and 31 percent from the first quarter. The carrier's adjusted EBITDA margin was 30 percent, up from 26 percent in the year-ago quarter and 24 percent in the first quarter.
LTE: T-Mobile said its LTE network now covers 290 million POPs, up from 275 million at the end of the first quarter. Ray said that the company expects to hit its year-end goal of 300 million POPs covered with LTE early and aims to go beyond that coverage level by the end of the year. During 2015, the company expects to add 1 million square miles of territory under its LTE coverage. T-Mobile said "wideband LTE," which refers to markets that have bandwidth of at least 15x15 MHz dedicated to LTE, is currently available in 212 market areas and is now expected to be available in more than 250 market areas by year-end.
In terms of the company's 700 MHz A-Block spectrum deployment, Ray said that the deployment now covers 130 million POPs and that the company will get close to 190 million POPS by the end of the year. Importantly, Ray said that his goal is to have 50 percent of the company's subscriber base on a device that supports 700 MHz spectrum by the end of the year, which he said will improve coverage and in-building performance for customers. T-Mobile executives said they expected the continued deployment of 700 MHz spectrum to improve network performance and lead to lower churn.
Approximately 98 percent of the population covered by the company's A-Block spectrum is free and clear and ready to be deployed or will be ready for deployment in 2015. In the second half of the year, T-Mobile will deploy the airwaves in Atlanta, Los Angeles, New York, Portland and Sacramento, among others.
At the end of the second quarter of 2015, T-Mobile owned an average of 84 MHz of spectrum across the top 25 markets in the U.S. The spectrum is comprised of an average of 10 MHz in the 700 MHz band, 30 MHz in the 1900 MHz PCS band and 44 MHz in the AWS band. Overall, Ray said that only 40 percent of the company's spectrum nationwide is dedicated to LTE service.
MetroPCS: On July 1, T-Mobile officially completed the shutdown of the MetroPCS' CDMA network with the decommissioning of the CDMA portion of the MetroPCS networks in Dallas, New York City, Miami, and Jacksonville, Orlando, and Tampa, Fla. Since the close of the merger with MetroPCS in May 2013, T-Mobile said nearly 9 million legacy MetroPCS customers have been migrated to the T-Mobile GSM/HSPA+/LTE network. As of now, T-Mobile said 100 percent of the MetroPCS AWS and PCS spectrum on a MHz/POP basis has now been re-farmed and integrated into the T-Mobile network, compared to 80 percent at the end of the first quarter.
T-Mobile said total decommissioning costs for CDMA network shutdowns were $34 million in the second quarter of 2015, compared to $128 million in total decommissioning costs in the first quarter. Typically, there is a lag of approximately three to six months between network shutdown and the recognition of decommissioning costs and realization of synergies. The company expects to incur additional network decommissioning costs of $350 to $450 million, with substantially all the costs to be recognized through the rest of 2015.
Churn: Branded postpaid phone churn was 1.32 percent in the second quarter, down from 1.48 percent in the year-ago period and up slightly from 1.30 percent in the first quarter.
ARPU: Branded postpaid average billings per user (ABPU), which includes equipment installment plan billings and service revenue, was $63.29 in the second quarter, up 3.9 percent from $60.94 in the first quarter of 2015 and up 5.9 percent from $59.79 in the second quarter of 2014. Year-over-year, the increase was primarily due to growth in EIP billings on a per user basis, offset in part by lower branded postpaid phone ARPU.
Special Report: Wireless in the second quarter of 2015
T-Mobile lets customers get free upgrade to next iPhone, lock in $15 monthly fee
T-Mobile launches new family plan with 10 GB of data, but drops existing unlimited promotion
Analysts: T-Mobile's strong Q2 subscriber numbers likely to boost revenue, crimp earnings and margins
T-Mobile seeks to pre-empt AT&T's international expansion with free roaming to Mexico, Canada
Despite T-Mobile's 'Never Settle' campaign, fewer Verizon subs ported to T-Mobile in Q2 than Q1
T-Mobile unveils 'Jump On Demand' program, lets customers upgrade 3 times per year
T-Mobile expects to add more than 3M postpaid subs in 2015
Correction, July 31, 2015: This article incorrectly attributed comments made by T-Mobile CTO Neville Ray to T-Mobile COO Mike Sievert.