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T-Mobile closes in on third place, charges customers less than half what Verizon does, on average

T-Mobile U.S. Inc. (TMUS) posted an incredible quarter in terms of subscriber growth in Q1 2014.  Versus bigger rivals Verizon Wireless (owned by Verizon Communications Inc. (VZ); number one in U.S. wireless market; 539k net adds in Q1), AT&T Inc. (T) (number two in wireless market; 575,000 net adds in Q1), and Sprint Corp. (S) (number three in the wireless market; 565k net losses in Q1), it wasn't even close.  T-Mobile U.S. shattered records adding 2.4 million net customers
 
I. America's Fastest Growing Carrier
 
T-Mobile U.S. had never before added even 2 million customers in a quarter -- to say it shattered its previous growth record is a bit of an understatement.  And what makes its growth particularly impressive and surprising is the fact that it did it at a time when it's finally forced Verizon and AT&T to get more competitive on the pricing front.
 
The carrier saw 1.8 million branded additions, including 1.3 branded postpaid additions -- nearly tripling AT&T and Verizon's postpaid add totals for the quarter.  Tablet adds continue at a steady pace, contributing 67,000 postpaid adds (T-Mobile only last year began to offer tablet data services).


Financials are looking healthy as well, with revenue rising to $6.875B USD for the quarter.  Earnings before tax, interest, depreciation, and amortization (EBITDA) fell slightly to $1.088B USD (down from $1.469B USD), but that seems a relatively small price to pay for such incredible, unprecedented growth.
 
One cause of the EBITDA drop was an uptick in smartphones, which set a sales record for T-Mobile, moving 6.9 million units.  T-Mobile makes a bit less money up front on smartphone sales.  T-Mobile's Jump! early upgrade program is another expensive incentive, but is very popular with 5.3 million enrolled users.

T-Mobile Jump
 
The biggest cause of the dip, though, was a temporary and beneficial one -- T-Mobile's program to pay customers early termination fees (ETFs) for those who switch from Verizon, AT&T, and Sprint.  T-Mobile says roughly 21 percent of postpaid gross adds (roughly 275,000 customers) took advantage of the promotion, indicating T-Mobile is successfully convincing customers to ditch their more expensive contracts on other carriers.

II. Incredible Evolution

T-Mobile's "rock star CEO" John J. Legere, cheered the earnings, remarking:

A year ago I promised that we would bring change to what I called this arrogant US wireless industry. We are delivering on that promise and our results reflect the growing customer revolution that we’ve ignited.

We are now approaching 50 million customers, added 2.4 million net new customers in the first quarter alone, and posted our fourth quarter of consecutive service revenue growth, while once again adding more net new postpaid customers than the rest of the industry combined!

T-Mobile continues to lead the way in budget value with an ARPU (average revenue per users) of $50.01 USD for postpaid users in Q1 -- down more than four dollars from a year ago.  That means that over the life of a plan, T-Mobile customers pay less than half of what they do on Verizon, on average.  Verizon posted an ARPA (average revenue per account -- a different figure) of ~$160 USD in Q1, up 6.3 percent from Q1 2013.  Verizon no longer reports ARPU, but given that ARPA was up, ARPU was likely up or similar to Q1 2013, which saw an ARPU of $107.15 USD. 

T-Mobile John Legere
T-Mobile CEO John Legere has transformed his company into America's hottest cellular service.
[Image Source: CNET]

Perhaps the most impressive part of T-Mobile's earnings was its incredibly low churn level.  Verizon in Q1 saw overall postpaid churn of 1.07 percent, while AT&T saw total retail churn of 1.07 percent.  By contrast T-Mobile's postpaid churn came in at 1.5 percent.  
 
While that may sound like a resounding win for Verizon and AT&T, it's actually a major victory for T-Mobile which traditionally was a percentage (100 basis points) or more higher than the top carriers.  This wasn't necessarily a historic black mark on T-Mobile; budget carriers traditionally have much higher churn.  Sprint, for example, in Q1 saw postpaid churn of 2.18 percent, which is more typical.  The fact that T-Mobile's churn is so low for a budget carrier is yet another sign of the company's incredible recent success.
 
It's hard to deny that T-Mobile appears to be the most popular carrier in the U.S. market currently, with strong customer satisfaction, a strong brand, and incredible growth.  
 
Looking ahead there's cause to concern of what effects a potential merger with Sprint via a Softbank Corp. (TYO:9984) bid could bring.  Deutsche Telekom AG (ETR:DTE) who owns roughly 67 percent of T-Mobile U.S. shares, is eager to sell the carrier, whose share prices are up 88 percent on a year-to-year basis.
 
SoftBank's Son
Softbank CEO Masayoshi Son is eager to get his hands on T-Mobile and merge it with Sprint.
[Image Source: Reuters]

But those concerns don't change the fact that T-Mobile has made incredible progress since last year's merger with MetroPCS and Mr. Legere's appointment to the CEO spot in Sept. 2012.  T-Mobile has gone from struggling to the hottest player in the market an unexpected and incredible evolution.

T-Mobile ended the quarter with 49.1 million customers, just shy of the 54 million Sprint ended Q1 with.  If Sprint and T-Mobile don't merge, expect T-Mobile to possibly seize third place sometime in 2015.

Sources: T-Mobile [press release], [investor slide deck]



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No Sprint!
By aurareturn on 5/1/2014 12:28:56 PM , Rating: 2
I will be pissed if Sprint merges with TMobile. Sprint's network is dogcrap.




RE: No Sprint!
By bobcpg on 5/1/2014 12:37:34 PM , Rating: 2
To add, I think we hit the sweet spot with 4 carriers. One of them had to break free and compete on price and everyone is better off for it no matter what carrier you are on.

This needs to happen in so many other tech industries...


RE: No Sprint!
By tayb on 5/1/2014 12:57:49 PM , Rating: 2
Sprint has already been competing on price they just have a crappy network. T-Mobile has a crappy network also but they are getting better fast thanks to this new capital.


RE: No Sprint!
By Flunk on 5/1/2014 1:16:27 PM , Rating: 2
Combining two crappy networks could be useful. With the overlap you might end up with decent coverage.


RE: No Sprint!
By Spuke on 5/1/2014 1:21:00 PM , Rating: 2
If their network improves with the merger then I'm jumping ship.


RE: No Sprint!
By aurareturn on 5/1/2014 1:28:18 PM , Rating: 2
I live in San Francisco and with Sprint, I had 56k speeds(if it even works). Calls dropped all the time. Text messages sometimes didn't get through.

With T-Mobile, I get average 10/4 speeds almost everywhere.

There's no comparison between Sprint and TMobile in San Francisco.

I went through hell to get rid of Sprint. I don't want to have anything to do with them again.


RE: No Sprint!
By Dr. Kenneth Noisewater on 5/1/2014 2:15:51 PM , Rating: 2
And in Austin I get 30M/7M on Sprint LTE via Ting.

$50/mo is a smidge less than 2x my average monthly cost.


RE: No Sprint!
By RaistlinZ on 5/1/2014 5:12:18 PM , Rating: 2
Same situation for me here in northern Virginia. I just switched from Sprint to T-Mo. a week ago. Sprint gave me 0.55Mb/s speeds. T-Mo. is around 18Mb/s everywhere I go.

IF Sprint and T-Mo are going to merge they need to use T-Mo's network.


RE: No Sprint!
By RjBass on 5/6/2014 9:03:01 AM , Rating: 2
I live in Kansas City, just a county up from Sprints world HQ. If I am standing in front of the Sprint Arena in downtown KC, I get a crappy signal. Sprint is just the suck all the way around.


RE: No Sprint!
By Argon18 on 5/5/2014 5:30:58 PM , Rating: 2
"Sprint has already been competing on price they just have a crappy network. T-Mobile has a crappy network also but they are getting better fast thanks to this new capital."

T-mobile used to have a crappy network. I get 4 bars of 4G LTE just about everywhere in my city, and along all the major highways. They aren't so good in rural places, but I don't venture out there often. I've been on T-mobile for ~3 years now, and they have improved substantially in that time. I'm very pleased with them. My bill is ~$30 a month less than it was on Verizon for the same service level.


RE: No Sprint!
By Drafter on 5/1/2014 3:32:00 PM , Rating: 2
I agree, I switched from Verizon to T-Mobile because their approach is very clearly more consumer friendly and understanding what you want and what you are getting is dead simple. I don't need Sprint coming in and muddying the water.


RE: No Sprint!
By vcolon on 5/1/2014 10:15:31 PM , Rating: 2
So is T-mobile's. I should know. I had their pathetic service for 5 years.


All things being equal.
By drycrust3 on 5/1/2014 5:38:21 PM , Rating: 2
quote:
Earnings before tax, interest, depreciation, and amortization (EBITDA) fell slightly to $1.088B USD (down from $1.469B USD), but that seems a relatively small price to pay for such incredible, unprecedented growth...
T-Mobile continues to lead the way in budget value with an ARPU (average revenue per users) of $50.01 USD for postpaid users in Q1 -- down more than four dollars from a year ago.

T-Mobile has a $50B network, and is wanting to get rid of its CDMA network, and has roaming agreements with other networks. I don't know if a $1B net profit is enough for what they want to do in the future. On the basis that most things are more or less equal, then you have to wonder how it is they can offer such a low price without it having a degrading effect on their network. I do think they will need to manage their expenses and costs very carefully if they wish to maintain their low charges and still make a profit.




RE: All things being equal.
By Drafter on 5/1/2014 8:08:16 PM , Rating: 3
I'm not following your logic. Their $1B net profit is low due to contract buy-outs as stated in the article. And a trade-off for the profit hit is +2.4 million subscribers which is sure to reflect positively on their Q2 financials. That $1B net profit is also after doing business as usual which includes an aggressive expansion of their LTE network.

Reading between the lines, they must be way more profitable today than they were last quarter and I'm not seeing how a lack of revenue is stopping them from future plans.

I'm on my 2nd month of T-mobile in the California Bay area, saving $40/month versus my old Verizon plan and I've learned my service is mostly on par with Verizon's. This one new subscriber is paying his monthly bill with loyalty in mind and T-mobile can count on me in the future so long as they keep it simple and friendly like they have it now.


RE: All things being equal.
By jbeenemd on 5/2/2014 1:31:54 AM , Rating: 2
T-Mobile is not and has never been a CDMA network. Did you mean Sprint as they and Verizon were CDMA networks and are transitioning to their respective versions of LTE.


RE: All things being equal.
By drycrust3 on 5/2/2014 9:22:51 AM , Rating: 2
My apologies, I was sure I had read in Wikipedia that T-Mobile USA had used CDMA in the past and was phasing this out and replacing it with UTMS. T-Mobile USA has acquired MetroPCS's network, which is amongst other things a CDMA-based network, so maybe that is what I read, but I'm quite sure that isn't what I had read.
Regardless, the point being that running a network costs money, and normally the network supports a large number of users who pay for the network to keep running, but with a network being phased out, then the users are dwindling, they are being shifted to the more modern network, so the old network is loosing users, meaning it is only a matter of time before the users connected to another part of the company would be paying for the CDMA network. This pushes up the costs of the profitable part of the company.


RE: All things being equal.
By RjBass on 5/6/2014 9:08:47 AM , Rating: 2
Well that is the problem. Wikipedia. Don't ever believe a thing from Wikipedia unless you also check the articles source.

I know most articles on Wikipedia are fine, but you never know when some user edits an article with a bad piece of info. The editors are usually pretty good about cleaning that crap up, but it is a huge site. They don't always get to everything promptly.


I'm one of them
By laviathan05 on 5/1/2014 1:00:32 PM , Rating: 3
Switched from AT&T. Got the brand new M8, same data with now unlimited minutes and texts, early termination fee paid for, $$ for my old phone, and my monthly bill dropped $16.




RE: I'm one of them
By JasonMick (blog) on 5/1/2014 3:46:53 PM , Rating: 2
quote:
Switched from AT&T. Got the brand new M8, same data with now unlimited minutes and texts, early termination fee paid for, $$ for my old phone, and my monthly bill dropped $16.
Ha, almost identical experience here. My two years with AT&T were up at the start of the month and my fiancée's iPhone 4S died, so we jumped onto T-Mobile (I had been on AT&T, she had been on Sprint).

I got the HTC One M8 (Android), she got the Lumia 925 (Lumia)... so far both phones have served us well. And thanks to my good credit T-Mobile offered the phones to us with no interest for splitting up the payments (might be a promotion too in my region -- idk?). So no big hits to the bill.

To put things in context, me + the fiancée (2 people) with free early upgrades every six months via Jump! w/ 3 GB of data and unlimited talk and text are the same price as I was paying for just myself on AT&T with 3 GB + 450 minutes + unlimited texting (around $100 in each case).

So I now have unlimited minutes, I get a second line effectively for free, plus free early upgrades for each line. Plus if I run over my data I can still get 3G data, at no overage fees.

I was worried about T-Mobile's service when switching over, because I've heard mixed things, but I was actually impressed to find I now have far fewer dropped calls than on AT&T's network. My region isn't even a high use one for AT&T, but I still would have fairly frequently dropped calls... maybe a couple a week. And on AT&T there were several identifiable dead zones in my area and inside large brick or concrete buildings there tended to be no service. On T-Mobile I get moderately fast service inside such buildings which were previously dead to my phone. I have yet to find a dead spot on T-Mo... all of AT&T's dead spots are covered.

And T-Mo's LTE in my area, at least is WAYYYYY faster than AT&T. I pulled down a 24 MB app yesterday in under 2 seconds. It was actually startling. On AT&T a download of that size would often take at least 30 seconds to a minute, even if it *claimed* to have LTE.

I realize this is dependent on your regional support, so I'm not claiming everyone will have this kind of experience, but in my case I did, and I'm thrilled about it. Makes me rather bitter though at AT&T's poor service in retrospect.

In short T-Mobile has a way better price and a better network in my area that AT&T.

To be fair, I know that AT&T got a bit more competitive pricing wise in my region (thanks to T-Mobile *cough*), but still I'd be paying more on AT&T for inferior service even at current rates.... and after enduring being overcharged for 2 years, enough was enough.

To AT&T, I say "good riddance to a bad experience".

To T-Mobile, I say, I'm a completely satisfied customers so far.


RE: I'm one of them
By JasonMick (blog) on 5/1/2014 4:07:39 PM , Rating: 2
quote:
so we jumped onto T-Mobile (I had been on AT&T, she had been on Sprint).
Whoops small correction, my fiancée was on Verizon.

Verizon service coverage is very good in my reason, but T-Mobile roughly matches it, she says.

Oh and I meant to mention, her parents are thinking of jumping on our plan after seeing our cool new phones and how cheap our bill is. If they do that our bill will get even cheaper!! Hurray!! :)

I've been on Sprint and Verizon, but I had Verizon charge me literally around $4000 over basically a data glitch that result in 10 GB worth of data being pulled down while tethering and connected to an FTP. I still believe that the error was on their end, but basically my choices were to hire a lawyer which would likely cost a couple of thousand of dollar or accepted their "settlement" of $2000. I ended up going with the latter route, begrudgingly, soon dropped my service. As for the service itself (I also had a smartphone with them) coverage was good and data speeds were fast, but the price was rather high, similar to AT&T or maybe a tiny bit cheaper.

Was also on Sprint. Sprint had similar coverage quality in my area to AT&T (rather poor) and data speeds were really hit or miss -- sometimes they'd be fast, other times it would struggle to even load the DT homepage. Sprint was cheap at least. The one thing that soured me to Sprint was that I got hit by these text message spammers that apparently can send you premium messages each month and then charge you for it. Federal lawsuits state that Sprint and other carriers gets kickbacks for these texts (see Jawa vs. AT&T, for example). Other carriers -- including AT&T also do this, but to my knowledge only Sprint was still allowing this following the first wave of lawsuits. I could not believe it when they initially refused to take the texts off my bill.

And in the end they only agreed to take one months worth off, arguing that "some people want these messages". I've written about the experience on here -- it sounds unbelievable, but its true. Suffice it to say that soured me to Sprint and contributed to my decision to switch to AT&T.

In both Sprint and Verizon's case I felt the carrier targeted me with fees schemes that were by any measure very dishonest and depending on your view bordered on fraud. In AT&T's case they were nice enough and didn't try to hit me with any overly big fees or anything too offensive, but just the price and service were disappointing.

With T-Mobile, so far the service and price have been great and I have yet to see them engage in any sort of the misbehavior I experienced with Sprint and Verizon.


RE: I'm one of them
By Chaser on 5/6/2014 6:14:27 PM , Rating: 2
I did the same thing, switched mid contract from AT&T. They bought my HTC M7 from me, just the phone, not anything else. Nice to keep my charger and HTC One ear buds. I am expecting my ETF refund card in a few weeks and I am thoroughly pleased with the NEW T-Mobile LTE service in the metro Salt Lake City area, all while saving $30.00+ a month. WIN!


But...
By dsquare86 on 5/2/2014 5:57:29 AM , Rating: 2
Your coverage still sucks in my area... Therefor I won't be your customer for the foreseeable future.




RE: But...
By kart17wins on 5/2/2014 9:27:14 AM , Rating: 2
T-Mobile coverage sucks in my area also. I gave them a try and had to switch back as I couldn't even always get data right in the middle of town.


T-mobile win
By mike8675309 on 5/1/2014 7:29:27 PM , Rating: 2
T-mobile gives interest free financing on their phones now to most people, you don't have to have "stellar" credit.

Been on t-mobile from Verizon for 5 months so far. Not quite as wide coverage as I had on Verizon in my area, but it works well for sure. The big win is the cost. 4 smart phones on T-mobile and I'm saving about $40 per month from what was 2 smart phones, a feature phone and a spare flip phone on Verizon.

Their latest discounts on Verizon and AT&T would still cost me more to switch back over to either of them.




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