T-Mobile USA Inc. posted a solid first quarter, bringing in 980,000 net new subscribers and outperforming analyst’ expectations, largely on the strength of its prepaid customer growth.
According to RBC Capital Markets analyst Jonathan Atkin, the fourth-largest carrier and Verizon Wireless have been the biggest beneficiaries of Sprint Nextel Corp.’s current weakness.
T-Mobile USA’s net customer additions were down slightly from the 1.04 million subscribers it gained in the first quarter of 2006, but increased from the 901,000 customers added during the fourth quarter. Postpaid customers made up 74% of first-quarter customers, up from 70% during the prior year’s period. Postpaid subscribers accounted for 84% of T-Mobile USA’s customer base at the end of the quarter.
Despite a significant split among
the four carriers in terms of net adds, with AT&T Mobility and Verizon Wireless consistently gaining well over 1 million subs per quarter and Sprint Nextel currently struggling due to defections from its iDEN operations, T-Mobile USA continues to hold its own against its larger competitors.
Who needs 3G?
T-Mobile USA also increased its average revenue per user from $51 to $52 year-over-year. The carrier’s data revenues continued to grow, hitting $7.50 per customer, up from $6.50 per user in the prior first quarter; part of the boost was because T-Mobile USA started including its HotSpot Wi-Fi operations in its data service revenues. Strong messaging growth also contributed, the carrier said; Atkin noted that the data growth was noteworthy in part because the carrier is the only national operator without a 3G network, yet is still garnering additional revenue from conventional services such as text messaging and Web browsing.
MyFaves a factor
“They’ve always competed pretty well, and it’s not due to reliance on prepaid,” Atkin said. “[T-Mobile USA’s] ARPU continues to grow, and a lot of it is due to differentiation and the biggest thing I’d point to is myFaves. It’s probably the biggest-selling postpaid offer that they have.”
The service, which allows customers unlimited calls to five numbers regardless of network, has a specialized user interface. Atkin noted that the premium which T-Mobile USA charges for the myFaves service bucks the trend of voice services. (Alltel Corp. offers a similar service through its MyCircle offering, but includes 10 numbers for free calling.) T-Mobile USA charges a $10 premium per month for the myFaves offering over its standard calling plans.
“This is an example where everything in wireless voice is a commodity, but there’s still room for differentiation,” Atkin said.
T-Mobile USA’s total churn rate declined from 2.7% in 2006’s first quarter to 2.6%, while postpaid churn fell from 2.1% to 1.9% year-over-year.
DT struggles at home
Despite T-Mobile USA’s performance, parent company Deutsche Telekom AG’s stock fell in trading on Wall Street due to a 60% decline in the European carrier’s profit for the first quarter. The decline was a result of large numbers of German customers leaving DT’s wireline operations in that country.
Rene Obermann, CEO of DT, told analysts in a conference call that the company’s growth strategy was centered around mobile and gradually changing DT’s portfolio to be less Germany-centric due to the difficulty of that market.
“Therefore, we will change the portfolio over time, and therefore, we will invest more into mobile and also invest abroad based on very strict financial criteria,” Obermann said, adding that the company was not going to rush into anything and would look “for good opportunities within our footprint and also adjacent to our footprint because of the synergy effects that we can get from that.”
