T-Mobile US (NYSE:TMUS) said it added 1.47 million total net new subscribers in the second quarter, including 908,000 branded postpaid net adds. While T-Mobile didn't report quite as many postpaid net adds in the period as Verizon Wireless (NYSE: VZ), it did have more total new subscriber additions and it showed strong growth in phone subscriber additions. T-Mobile also said it now expects to add between 3 million and 3.5 million branded postpaid net subscribers in 2014, up from its previous estimate between 2.8 million and 3.3 million.
Click here for key slides from T-Mobile's earnings presentation.
T-Mobile has added 2.23 million branded postpaid customers so far this year.
The carrier's second quarter was aided by its two new "uncarrier" moves, including "T-Mobile Test Drive," which lets consumers try the T-Mobile network and an Apple (NASDAQ: AAPL) iPhone 5s for seven days for free, and its "Music Freedom" promotion, which lets its Simple Choice customers access streaming music services without incurring data charges.
On the company's second-quarter earnings conference call, T-Mobile CEO John Legere said he did not want to be "cocky," but he declared: "We are the competitive environment." He said T-Mobile's moves are not based on it reacting to other carriers. "The competitors are responding to our moves," he said.
"We are very comfortable with where we are," Legere said, adding that the carrier's profitability is growing and that T-Mobile believes it can sustain its "uncarrier" offerings, such as paying off the Early Termination Fees of customers who switch and trade in their phones.
Hanging over the carrier's earnings announcement are persistent rumors that Sprint (NYSE: S) and T-Mobile will propose a merger, perhaps as soon as September. Legere did not discuss that deal specifically but talked at length about whether T-Mobile needs to make a deal with another carrier in order to remain competitive.
"T-Mobile is doing absolutely everything that is necessary" as part of its strategy to continue to grow and be successful, Legere said. In terms of "inorganic" opportunities, or deals, Legere said that is "always an opportunity" and that there are "multiple" such opportunities that T-Mobile will consider.
Legere said T-Mobile's management has always been clear that in the long term the wireless industry is a "scale game" and that Verizon and AT&T are "hugely powerful from a standpoint of scale and capital." Legere also said that T-Mobile sees "a path forward to be highly successful as a standalone company" but that T-Mobile knows it could accelerate that growth through a deal.
Yet Legere concluded: "The company is not in need of doing something [in terms of a deal] to be successful in the short to medium term."
Here is a breakdown of T-Mobile's second-quarter results:
Subscribers: T-Mobile added 1.47 million total wireless customers in the quarter, and ended the period with 50.5 million. The company reported 1.01 million branded net subscriber additions and 460,000 wholesale additions.
T-Mobile said its postpaid net customer additions were 908,000, including 579,000 phone net additions and 329,000 mobile broadband net additions, mostly tablets. That's up from 688,000 branded postpaid net adds in the second quarter of 2013.
In contrast, of the 1.42 million retail net customers Verizon added during second quarter of 2014, just 304,000 were postpaid phone net additions. The remaining 1.15 million were postpaid tablet subscribers.
T-Mobile also had 102,000 branded prepaid net customer adds in the second quarter, which was down from 465,000 in the seasonally strong first quarter of 2014, but up when compared to a loss of 87,000 net additions in the second quarter of 2013 on a pro forma combined basis when adding in MetroPCS.
T-Mobile's wholesale net adds included 225,000 M2M net adds, up 69 percent year-over-year, and 235,000 MVNO net adds, down 26 percent year-over-year.
LTE: T-Mobile said it now covers 233 million POPs with LTE and aims to cover at least 250 million by the end of 2014. The company intends to cover more than 280 million POPs with LTE by mid-2015. T-Mobile has 10x10 MHz LTE deployed in 43 of the top 50 metro areas. The carrier said it has started to deploy its first LTE cell sites using 1900 MHz PCS spectrum. In addition, the carrier said as of today it is covering more than 200 million POPs with Voice over LTE technology.
The carrier said it is rapidly deploying Wideband LTE (its marketing terms for LTE networks with at least 15x15 MHz configurations), which it now offers in 17 markets. T-Mobile said it will deploy Wideband LTE in 26 markets by year-end. T-Mobile also said it will start rolling out is 700 MHz A Block spectrum beginning in the third quarter. The spectrum covers 158 million POPs, including nine of the top 10 and 21 of top 30 metro areas. The company said its first 700 MHz sites are on air and its first handsets are being tested and should be in the market in the fourth quarter. T-Mobile said it has already cleared encumbered A-Block metro areas in five markets covering more than 13 million POPs on top of many markets already free and clear. Legere said it has entered into agreements with multiple unnamed companies to buy A Block spectrum covering an addition 8.7 million POPs for $50.5 million.
MetroPCS: T-Mobile said it continues to expand MetroPCS. As of June 30, MetroPCS was in 45 markets, approaching 10,000 distribution points in total, including over 3,100 distribution points in the 30 expansion markets T-Mobile launched in 2013.
The carrier began selling T-Mobile-compatible devices to MetroPCS customers in the second quarter of 2013 and has already transitioned approximately two-thirds of legacy CDMA MetroPCS customers to T-Mobile's GSM/HSPA+/LTE network. Around 60 percent of the MetroPCS spectrum has been refarmed and integrated into the T-Mobile network as of the end of the second quarter of 2014.
On July 7, T-Mobile shut down the CDMA portions of the MetroPCS networks in Boston; Hartford, Conn.; and Las Vegas. T-Mobile said it is also planning more shutdowns of the CDMA portions of MetroPCS networks, including in Philadelphia, during the second half of 2014. The carrier promises a "seamless" transition for those Metro customers. T-Mobile said total one-time shutdown costs are expected to be between $250 million and $300 million in 2014.
Smartphones: T-Mobile's total smartphone sales, including sales to branded postpaid and prepaid customers, were 6.2 million units in the second quarter (up from 4.3 million in the year-ago period). T-Mobile said that equated to 93 percent of all phone units sold. The carrier said 83 percent of its branded phone customer base had a smartphone at the end of the second quarter.
Churn: T-Mobile said its branded postpaid phone churn was 1.5 percent in the quarter, flat quarter-over-quarter and year-over-year. T-Mobile's branded prepaid churn was 4.5 percent in the second quarter, up from 4.3 percent in the first quarter but down from 5.4 percent in the year-ago period.
ARPU: T-Mobile said branded postpaid phone ARPU was $49.32, down from $50.48 in the first quarter and $54.04 in the year-ago period. T-Mobile said the drop was due to the continued growth of no-contract Simple Choice plans as well as the one-time impact of a reduction in regulatory surcharges and a revenue adjustment for expected customer refunds related to premium SMS charges.
T-Mobile said 80 percent of its customers were on Simple Choice plans, up from 75 percent at the end of the first quarter. T-Mobile continues to expect 85 and 90 percent of its branded postpaid customers to be on the plans by the end of 2014.
T-Mobile said branded postpaid average billings per user (ABPU), which consists of branded postpaid service revenues plus monthly equipment installment billings divided by the average branded postpaid customers in the period, was $59.79 in the second quarter of 2014, up 1.8 percent compared to the second quarter of 2013 and up 0.4 percent compared to the first quarter of 2014.
Branded prepaid ARPU for the second quarter of 2014 increased by 3 percent to $37.16 compared to the first quarter of 2014.
Financials: The company said total revenue jumped 15 percent to $7.19 billion, driven by growth in equipment sales and the inclusion of MetroPCS, which the company acquired last spring. Service revenue jumped to $5.48 billion, up from $4.75 billion in the year-ago period.
T-Mobile reported net profit of $391 million, up from a $16 million loss a year ago. That was thanks in large part, as Re/code notes, to a $731 million gain from a spectrum swap deal with Verizon.
The carrier's adjusted EBITDA for the second quarter of 2014 was $1.45 billion, up 14.7 percent from the second quarter of 2013 on a pro forma combined basis. The increase in Adjusted EBITDA reflected ongoing cost improvements amid continued strong customer growth, T-Mobile said. T-Mobile said its adjusted EBITDA margin was 26 percent compared to 20 percent in the first quarter of 2014.
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Correction, July 31, 2014: This article incorrectly stated the amount T-Mobile paid for 700 MHz A Block spectrum in recent transactions; it was $50.5 million, not $55 million. Additionally, the article incorrectly stated T-Mobile's branded prepaid churn for the second quarter; it was was 4.5 percent.