T-Mobile US Inc. may well win bragging rights to be the first operator to carry a handset based on Google (Nasdaq: GOOG)'s Android operating system this fall. But how well are Deutsche Telekom AG (NYSE: DT)'s U.S. subsidiary and its international mobile operations actually doing? (See Android Arriving November 10?)The last time Unstrung scored T-Mobile International AG 's performance, we upgraded it to a B+ because of its mobile Internet services, data service revenue growth, and good subscriber growth. Following Deutsche Telekom's half-year results, we take a look at the mobile operations to see if they still make the grade. (See D Telekom Reports Q2, Carrier Scorecard: T-Mobile, and Carrier Scorecard: T-Mobile.)

In Europe, mobile data and mobile Internet usage was still going strong in the second quarter of this year. Mobile data revenues were up 46.2 percent to €350 million (US$516 million) across the company's European operations, compared with the second quarter of last year. While the big double-digit growth is good, mobile data accounts for only 6.7 percent of European mobile revenues. The number of users of web'n'walk, the operator's brand of mobile Internet services, went up to 4.1 million in Western Europe, which is a 70 percent increase compared with last year.

The operator has reportedly sold more than 120,000 3G iPhones in Germany, Austria, and the Netherlands, since the devices went on sale on July 11.

T-Mobile by numbers
T-Mobile reported 2008 second quarter revenues of €8.7 billion ($12.8 billion), which is up 2.7 percent compared to the first quarter this year. Operating profit in the second quarter increased 14.7 percent to €1.4 billion ($2 billion), compared to the first quarter. Subscribers increased just 1.5 percent to 125 million in the second quarter, compared to the previous quarter. The operator noted that the U.S. and U.K. figures were negatively affected by the difficult exchange rates between the U.S. dollar and euro and British pound and the euro. (See Table 1.)

{Table 1}There are some worrying signs in T-Mobile's subscriber growth figures. The operator actually lost customers in the U.K. and Poland. In the U.K., specifically, a 14.8 decrease in EBITDA (earnings before interest, taxes, depreciation, and amortization) on a euro basis in the first half of this year shows just how much the operator had to invest in customer acquisition and retention. If EBITDA was measured in a comparative U.K. pounds sterling basis, then EBITDA decreased just 2.7 percent in the first half of 2008. The operator is clearly struggling to hang on to customers in the U.K. (See Table 2.)

{Table 2}There were also several markets where there was little to no subscriber growth in the second quarter, compared to the previous quarter, such as Austria, the Czech Republic, Croatia, and Slovakia. The strongest customer growth was in Germany and Hungary in the second quarter.

In the U.S., T-Mobile USA recorded its lowest number of quarterly subscriber additions in the second quarter this year since the same quarter in 2006. The operator attributes the increased churn to the expiration of two-year contracts that were introduced in April 2006. But the slowdown in subscriber growth could also be a sign of T-Mobile's next-to-nothing 3G coverage in the U.S. (See T-Mobile's 3G Craving, T-Mobile Adds More 3G, and T-Mobile 3G Next Week.)

T-Mobile USA has ramped up its HSDPA network rollout this year and plans to have about 25 markets covered by the end of the year. In the first half of this year, T-Mobile nearly doubled the number of 3G base stations in the U.S. to 14,000 at the end of the second quarter. Consequently, cash capex increased year-on-year from €900 million ($1.3 million) to €1.1 billion ($1.6 billion) in the first half of this year.

In T-Mobile's home market Germany, revenues were down 3.1 percent in the first half of this year compared with the same period last year. But the operator improved its profitability with an EBITDA increase of 1.7 percent in the first half of this year compared with last year through "targeted cost savings," as it boosted its subscriber base by 3.5 percent in the second quarter to 38.4 million in a fiercely competitive market.

Overall, T-Mobile is getting some momentum with new services like web'n'walk in Europe and MyFaves in the U.S., but the subscriber numbers tell a different story. Given the subscriber losses in the U.K., one of its key European markets, and the slowdown in customer adds in the second quarter in the U.S., T-Mobile gets bumped down to a B- grade.

— Michelle Donegan, European Editor, Unstrung