T-Mobile US (NYSE:TMUS) reported that since it started selling Apple's (NASDAQ:AAPL) iPhone 5 nationwide April 12 it has sold 500,000 units of the device, an indication of pent-up demand for the gadget at the carrier. T-Mobile made the disclosure in conjunction with the release of its first-quarter results, in which it said its total revenue slipped 7 percent.
T-Mobile launched the iPhone 5 in conjunction with its no-contract "Simple Choice" plans. The company has also been selling the iPhone 4S and 4 in select markets. Since all of T-Mobile's iPhone sales took pace during the sound quarter they had no bearing on T-Mobile's first quarter results, and analysts and investors will have to wait until the carrier reports its second quarter results to discern how the carrier's new strategy is playing out in the market.
T-Mobile's results also do not include those of MetroPCS; the two carriers merged in a deal that closed May 1. T-Mobile CEO John Legere has said that the newly combined, publicly traded company will be the "un-carrier," offering services that set it apart from other Tier 1 operators.
"Our first quarter operating metrics and financial results are showing positive impact from the changes we began making in the fourth quarter. Branded customer net additions turned positive for the first time since the first quarter of 2009 and our postpaid business has demonstrated significant improvement," Legere said in a statement. "We ended the quarter with strong operational momentum, which is continuing into the second quarter, driven by the successful launch of our Un-carrier 'Simple Choice' service plan and the introduction of the iPhone into our device line-up. Things only get more exciting from here, having brought T-Mobile USA and MetroPCS together to create the wireless industry's value leader and premier challenger."
Here is a breakdown of T-Mobile's key quarterly metrics:
Subscribers: T-Mobile reported a net gain of 3,000 branded customers during the period. The figure is notable considering T-Mobile reported a loss of 349,000 branded customers in the previous quarter and the loss of 262,000 branded customers in the year-ago quarter. Branded customers include both prepaid and postpaid customers who pay for service under the T-Mobile brand. At the end of the first quarter, T-Mobile counted a total of 6 million branded prepaid customers and 20 million branded postpaid customers. T-Mobile released details of its first-quarter subscriber numbers in April--click here for that story.
Smartphones: T-Mobile said that as of the end of the first quarter, total "3G/4G" smartphones, excluding iPhones, used by branded postpaid customers accounted for 12.5 million, or 62 percent, of its total branded postpaid customers, compared to 12.4 million or 61 percent in the fourth quarter, and 11.6 million or 53 percent in the first quarter of 2012. Additionally, T-Mobile's network supported 2.1 million iPhone customers at the end of the first quarter, of which 1 million were branded postpaid customers using the carrier's "bring your own device" program. The total number of iPhones at the end of the first quarter includes customers within T-Mobile's MVNO base. T-Mobile said when the 1 million branded postpaid customers using BYOD iPhones are included, more than 67 percent of its branded postpaid customers were using smartphones as of the end of the first quarter.
ARPU: Branded postpaid average revenue per user was $54.07 in the first quarter, down from $55.47 in the fourth quarter of 2012 and down from $57.68 in the year-ago quarter. T-Mobile said the decreases were due in part to the company's shift to Value and Simple Choice plans, which result in lower monthly service revenues while recognizing higher equipment revenues at the time a customer signs up. Additionally, branded postpaid ARPU decreased due to lower regulatory and customer fees but was partially offset by increased data revenues.
T-Mobile said branded prepaid ARPU rose to $28.25, up from $27.69 in the fourth quarter and $25.39 in the first quarter of 2012. T-Mobile said that branded prepaid ARPU increased year-over-year primarily due to the continued success of its monthly plans, which include data services and have higher ARPU than other T-Mobile pay-as-you-go prepaid plans.
Churn: T-Mobile's branded postpaid churn was 1.9 percent, down from 2.5 percent in both the fourth quarter and first quarter of 2012. T-Mobile said its continued focus on churn reduction efforts such as improving network quality and customer sales experience resulted in a significant improvement to the branded postpaid churn.
Financials: T-Mobile said its total revenue clocked in at $4.67 billion, down 7.1 percent from $5.03 billion in the year-ago period. Service revenue declined 9.9 percent year-over-year to $4 billion. The company's adjusted EBITDA fell 7.5 percent to $1.17 billion, and its EBITDA margin was flat at 29 percent.
"We believe TMUS EBITDA will fall by $1BN by 2015 due to value plan discounts; we don't think this is well understood by investors," wrote New Street research analyst Jonathan Chaplin. "The ARPU drop this quarter seems to support our view, although we will have to wait for the call to see how much stems from the acceleration of value plan adoption (not so bad) vs. a bigger than expected drop when subs shift to value plans (bad). The value plan drop is $10-20; this should be partly offset by subs buying up to smartphone plans such that we have modeled a $7 ARPU drop as the entire base switches over."
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