In a quarter where the carrier transitioned from one-year to two-year service contracts, T-Mobile USA Inc.’s net customer additions were down sharply and its churn was up. Service revenues increased 18 percent year-over-year, but the carrier’s net income plunged nearly 40 percent.
T-Mobile USA’s customer additions fell 37 percent during the second quarter-from 972,000 subscribers in 2005 to 613,000 customers this year. Company executives blamed the drop on the switch to two-year contracts, which matches the industry standard, and said it was only temporary.
“While this change resulted in lower net add growth in April during the transition, by June we finished with one of our best months of top-line sales since the holidays,” said Robert Dotson, T-Mobile USA’s president and chief executive officer, in a company statement. Kai-Uwe Ricke, chairman and chief executive officer of T-Mobile’s parent company, Deutsche Telekom AG, added during a conference call with analysts that another factor was “increased competition in prepaid, which we were not prepared to get involved in.”
The switch to two-year contracts is aimed at cutting T-Mobile USA’s churn rate. Last quarter, the carrier reported 2.9 percent overall churn, a tick up from the 2.8 percent that it reported for second-quarter 2005 and worse than first-quarter churn of 2.7 percent. T-Mobile USA’s postpaid churn stood at 2.2 percent during the quarter, down from 2.3 percent in a year-over-year comparison, but up slightly from the 2.1-percent churn in this year’s first quarter.
“T-Mobile continues to suffer from a reputation of limited network coverage, though the company vastly increased its coverage area in 2005 through roaming relationships with other carriers,” noted Technology Business Research Inc. analyst John Byrne in a research note.
T-Mobile USA has been aggressively vying for spectrum in the advanced wireless services auction as well, to bring its plans for a 3G network and expanded data services into reality.
T-Mobile USA ended the quarter with about 23 million customers, including 19.6 million postpaid customers. Of the 613,000 2Q net additions, about 507,000 customers signed up for postpaid plans and 106,000 customers were without a contract. Dotson also noted that T-Mobile USA posted a jump in its Research In Motion Ltd. BlackBerry users, gaining 51,000 customers during the quarter.
The nation’s fourth-largest carrier noted that its cost to acquire a customer had increased about 4 percent year-over-year to $322, due to higher advertising costs, fewer gross additions because of the contract-length changes and a larger percentage of postpaid net additions.
The company’s overall average revenue per user fell from $54 in the year-ago period to $52 in the second quarter; postpaid ARPU was unchanged at $55.
T-Mobile USA’s net income lagged from $387 million a year ago to $233 million, mostly due to higher income tax expenses, the carrier reported.
DT’s stock was down about 7 percent on Wall Street after the news last week. DT cut its full-year outlook, largely due to competitive pressure in its German operations.
“Internationally, we have growing operations across most of our markets, but at home we’re having to defend our market leadership position in an increasingly competitive and difficult environment,” said Ricke.
