(Source: T-Mobile USA)
Carrier adds 1.65 million net wireless customers for the quarter, loses $20M USD

T-Mobile USA, America's fourth largest carrier announced its Q4 2013 earnings on Tuesday.

I. T-Mobile Continues to be Most Affordable in Industry

The 67 percent Deutsche Telekom AG (ETR:DTE) owned cell phone service provider was closely scrutinized, after beating market leader Verizon Wireless (now a wholly owned subsidiary of Verizon Communications Inc. (VZ)) for two straight quarters in Q2 and Q3 2013.

Verizon posted impressive gains for the quarter, adding 1.653 million total subscribers (1.573 million postpaid, 80k prepaid) to reach 102.799 million (92.6 million postpaid) customers.  AT&T Inc. (T) added 809,000 phone customers (566,000 postpaid, 243,000 prepaid), 440,000 tablet cellular customers, and 398,000 connected device customers, to reach 110.4 million wireless subscribers (72.6 million postpaid).  Even Sprint Corp. (S) looked vigorous, with 682,000 net adds (58,000 net postpaid adds, 158,000 net prepaid adds, and 466,000 net tablet adds).

The good news for T-Mobile for the quarter was that it gained 1.6 million net customers for the quarter -- in a virtual tie with Verizon.  In total T-Mobile gained 981,000 branded subscribers -- better than AT&T or Sprint easily -- including 800,000 postpaid phone customers, 112,000 prepaid phone customers, and 69,000 mobile broadband (tablet) customers.

T-Mobile USA
T-Mobile USA continued to grow fast in customers in Q4, tying Verizon for the most quarterly growth. [Image Source: T-Mobile via iMore]

And it its revenue rose 39.1 percent to reach $6.83B USD.  That figure misssed an analyst average expectation of $6.94B USD compiled by Bloomberg.  The average revenue per user (ARPU) was $50.70 USD for the quarter, down 2.9 percent from a month ago, and missing analyst hopes of $51.06 USD.  To put that number in context, Verizon's industry-leading ARPU was $157.21 USD. 

That means the average customer pays a third as much on T-Mobile as on Verizon.  That's good news for customers, but not so good news for T-Mobile's earnings.

The affordable contracts came at a cost.  The carrier lost $20M USD in Q4 2013, up from $8M USD a year before.  The cost of its accelerating LTE deployment led to a 13.2 percent increase in capital expenditures, reaching $4.2B USD.  T-Mobile announced with its earnings that it expects this could increase up to 9.5 percent more, coming in at $4.3-4.6B USD this year.  That's still small compared to Sprint's planned spending of $8B USD and AT&T's $21B USD capital budget for this year.

II. Aggressive Spending, More Growth in Store for 2014

For the year of 2013 T-Mobile USA had 4.4 million net adds (on a pro forma basis), including 2.4 million net adds.  Its JUMP! iniative remains the most affordable and popular early-upgrade program in the industry, ending the quarter with 3.6 million customers.
T-Mobile Jump

For the year revenue grew 5.3 percent to reach $26.1B USD.  T-Mobile lost money in the lost three quarters of the year ($16M, $36M, and $20M USD) respectively, which offset a Q1 gain of $107M USD.  For the year, T-Mobile had a narrow net profit of $35M USD.  But with programs such as its recently announced up to $350 USD in incentives to pay the early termination fees (ETFs) of customers quitting other carriers, it seems likely that T-Mobile may face a net loss for its 2014 fiscal year.

That's not necessarily a bad thing.  If it continues to add customers, it will eventually make money analysts believe.  Comments Chief Financial Officer Braxton Carter:

Our business is a business that has acquisition costs of customers.  If we had not grown during 2013 you would have seen a massive increase in the profitability, in the Ebitda and the net income of our business.

T-Mobile expects its decline in user revenue and losses to stabilize in H2 2014.

John Legere
John Legere, T-Mobile USA CEO (center, pink/white shirt), with fellow executives.

Craig Moffett, a principal analyst at MoffettNathanson LLC in New York, comments:

T-Mobile is making money on each subscriber they acquire -- it’s just nowhere near as much money as the incumbents are used to.  The rest of the industry should be very afraid.

In other words even amidst talk of potential acquisitions and falling share values, T-Mobile is accomplishing exactly what rebellious CEO John Legere wants -- growing fast and shaking up its market rivals.

Sources: T-Mobile USA, Bloomberg

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