T-Mobile USA turned a corner during the third quarter as it added 126,000 customers to its network after several quarters of customer losses. While the growth was noteworthy, all of that growth was on the back of its prepaid, wholesale and nontraditional device segments, showing the continued difficulty the carrier faces in attracting more lucrative postpaid customers.
For the quarter, T-Mobile USA said it lost a total of 186,000 contract connections during the quarter, including a loss of 389,000 contract customers that was partially offset by the addition of 204,000 contract device connections. The losses were substantially higher than the 54,000 contract connections the carrier lost during the third quarter of 2010, though a sequential improvement compared with the 281,000 contract connections lost during the second quarter of this year. Connected device net additions were down from 271,000 during the third quarter of last year and 256,000 during the second quarter of this year.
The carrier blamed the year-over-year increase on lower gross customer additions that came along with more stringent credit requirements.
Prepaid and wholesale net customer additions surged from 190,000 subscribers during the third quarter of 2010 to 312,000 net customer additions this year. T-Mobile USA’s direct prepaid customer growth showed an even greater turnaround from a loss of 79,000 subscribers during the third quarter of 2010 to a gain of 254,000 customers this year.
Despite the strong quarterly result, T-Mobile USA did warn that fourth quarter results could be impacted by the recent launch of Apple’s iPhone 4S across its three largest rivals. Oh, and the carrier is also in the midst of potentially being acquired by one of those larger rivals.
At the end of the third quarter, T-Mobile USA said it served 33.7 million total connections on its network, including 2.5 million connected devices and 3.5 million customers through its wholesale channels.
While customer growth improved during the quarter, retention sagged as the carrier reported blended churn increased from 3.4% during the third quarter of 2010 to 3.5% this year. The carrier noted that contract churn remained steady at 2.4%, while prepaid churn remained constant at 7.2%.
Average revenue per user dipped from $47 during the third quarter of 2010 to $46 this year as an increase in postpaid ARPU ($52 to $53) was offset by a drop in prepaid ARPU ($19 to $18). Data services showed an increased influence on ARPU, increasing from $12.40 during the third quarter of 2010 to $14 this year. Echoing industry trends, T-Mobile USA reported that voice minutes of use fell from 1,080 minutes for its contract customers during the third quarter of 2010 to 990 minutes this year.
T-Mobile USA did manage to curb the cost of serving its customers as cash cost per user dropped $1 to $23 while the cost per gross addition dropped $30 to $260.
Overall, T-Mobile USA’s financial picture was mixed year-over-year. Total revenues dropped from $5.35 billion during the third quarter of 2010 to $5.23 billion this year, which was offset by a further decline in operating expenses that resulted in a gain in net income from $320 million in 2010 to $332 million this year. The decline in spending was not seen in capital expenses, which increased from $643 million in 2010 to $741 million this year, though the carrier did note that most of that difference was due to “payment timing differences,” and that true capex remained stable year-over-year. Capex spending is an important metrics for T-Mobile USA as it needs to continue showing support for its network operations in the face of the impending acquisition attempt by AT&T.
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