Nationwide wireless carriers received a big push from their smallest player as T-Mobile USA Inc. posted robust third-quarter financials that helped propel the group well beyond last year’s growth.
The industry’s three largest operators were only slightly ahead of last year’s growth before T-Mobile USA posted an impressive 1.059 million net customer additions. The result was well above the 901,000 customers the carrier added last year and surpassed most predictions. T-Mobile USA also pushed past the 20-million subscriber mark, ending the quarter with 20.3 million customers on its network.
Highlighting an increasing reliance on prepaid subscribers, T-Mobile USA noted that 32 percent of its growth during the quarter came from non-contract customers. The carrier noted that its customer mix was similar to its second-quarter results but has changed dramatically from the 10 percent to 13 percent prepaid mix the carrier reported during most of 2004.
Despite the rising number of prepaid users, T-Mobile USA’s customer churn improved from 3 percent during the third quarter of 2004 to 2.9 percent this year. The carrier noted that customer churn increased sequentially, from 2.8 percent posted during the second quarter as more customers reached the end of their one-year service contracts during the third quarter.
The strong customer growth bolstered T-Mobile USA’s revenues, which surged more than 25 percent from $3.035 billion in 2004 to $3.802 billion this year. Net income jumped more than 80 percent year-over-year, from $254 million during the third quarter of 2004 to $458 million this year.
But the quarter wasn’t good to everyone. U.S. Cellular postponed reporting its third-quarter financials until Nov. 28 after announcing plans to restate some of its previously released financial statements.
The carrier said it plans to restate full-year results for 2000 through 2004 and quarterly results for each quarter of 2003 and 2004, as well as the first two quarters of this year. The restatements stem from the carrier’s review of its accounting treatment for Universal Service Fund expenses; leases; contract termination fees; income tax accounting; and other adjustments.
Fitch Ratings placed U.S. Cellular and its parent company, Telephone and Data Systems Inc., on Rating Watch Negative following the restatement announcement. Fitch noted the ratings change impacts approximately $1.9 billion of TDS and U.S. Cellular debt.
U.S. Cellular did offer a handful of preliminary third-quarter results, including 77,000 net customer additions, well below the 111,000 subscribers the carrier added last year. The carrier’s postpaid customer churn was 1.5 percent, down slightly from the 1.6-percent churn it posted during the third quarter of 2004. Analysts were expecting the carrier to add between 100,000 and 110,000 customers during the quarter with postpaid churn of between 1.6 and 1.7 percent.
U.S. Cellular also lowered its full-year guidance from between 475,000 and 525,000 net customer additions to between 400,000 and 425,000 new subscribers. However, it maintained its guidance for around $2.8 billion in service revenues for the year.
Alamosa Holdings Inc.
Sprint Nextel Corp.’s largest CDMA affiliate, Alamosa, posted a 65-percent jump in revenues during the third quarter from $211.4 million in 2004 to $349.4 million this year. The results were slightly below estimates of around $360 million in revenues during the quarter.
The strong growth was bolstered by Alamosa’s acquisition of fellow affiliate AirGate PCS Inc. earlier this year, which contributed $103.7 million in revenues during the quarter. Pulling out AirGate’s contributions, Alamosa’s revenues grew a more modest 16.8 percent year-over-year.
Alamosa’s net income also improved from a loss of $274,000 during the third quarter of 2004, which was small enough to not result in a loss per share, to a return of $1.8 million this year, or a return of 1 cent per share. Analysts were expecting the carrier to post around $20 million in net income for the quarter.
Alamosa’s management noted little progress regarding the carrier’s ongoing negotiations with Sprint Nextel concerning violations of its affiliate agreement associated with Sprint Corp.’s acquisition of Nextel Communications Inc. in August.
“Discussions with Sprint to date have failed to lead to a mutually satisfactory agreement,” said Alamosa chairman and chief executive officer David Sharbutt.
Analysts noted that it’s becoming increasingly likely that a re-affiliation agreement will not be reached and that Sprint Nextel likely will be forced to acquire the affiliate.
A report last month from Zachary Research claimed Sprint Nextel and Alamosa had reached an understanding to re-work their affiliate agreement or have Sprint Nextel acquire Alamosa but were keeping details of the agreement confidential until Sprint Nextel’s pending appraisal process with affiliate Nextel Partners Inc. was completed.
Leap Wireless
- Leap reported an 11.4-percent increase in revenues during the quarter, from $206.9 million in 2004 to $230.5 million this year. The robust growth was propelled by Leap’s previously reported improvement in customer growth from a loss of 8,000 subscribers during the third quarter of 2004 to a gain of 23,000 customers this year and an 8.8-percent jump in average revenue per user from $36.97 last year to $40.22 this year.
- Leap’s net income plunged from a return of $959.4 million during the third quarter of 2004, or $16.36 per share, to a loss of $4.1 million this year, or a loss of 13 cents per share. Third-quarter 2004 results were tainted by a $963.2 million reorganization item that Leap said reflected the net impact of its “fresh-start” reporting related to its emergence from bankruptcy protection last year. Without the one-time item, Leap would have reported a $5.9 million net loss for the third quarter of 2004.
Rural Cellular Corp.
- RCC posted a solid 12-percent increase in revenues during the third quarter, from $132.4 million last year to $148.3 million this year. The growth was supported by a 41-percent surge in roaming revenues, which jumped from $29.7 million last year to a company-record $41.8 million this year, and a 42-percent increase in universal service funding, from $7.6 million last year to $10.8 million this year.
- Despite the strong revenue growth, RCC’s net income plunged from $2.2 million during the third quarter of 2004, a return of 17 cents per share, to a loss of $11.2 million this year, or a loss of 89 cents per share.
