Comment (8)Coming off its eighth consecutive quarter of adding more than 1 million postpaid customers, it's a safe bet that T-Mobile has overtaken Sprint as the third-largest US carrier by subscribers. Now it is turning its attention to taking on Verizon and its claims of superior LTE coverage.
T-Mobile US Inc. had a stand-out quarter when it comes to smartphone additions. The carrier's branded postpaid net customer additions came in at 1.1 million, including 991,000 phone net customer additions, compared to AT&T Inc. (NYSE: T) and Verizon Wireless , which both lost postpaid smartphone customers in the past quarter (and the one before that for AT&T). (See AT&T CFO Shrugs Off Google Fi as Limited and Verizon Focuses on Cashing In on LTE.)
Sprint Corp. (NYSE: S) will report its quarterly earnings on May 5, but it's looking increasingly likely that T-Mobile has officially passed the carrier in subscriber numbers as it ended the quarter with 56.8 million total customers. Sprint had 55.9 million total connections at the end of its last reported quarter. (See Sprint's Operating Loss Widens to $2.5B in Q3.)
"I will carefully say that we're very confident our postpaid earnings are the best in the industry by a long shot," T-Mobile CEO John Legere said on the call, noting that T-Mobile has captured all of the postpaid phone growth in the industry.
T-Mobile also reported its best-ever branded postpaid phone churn at 1.3%, down from 1.47% a year ago. Legere acknowledged that many of these customers are still new to the network, but said it demonstrates the real improvements T-Mobile has made under its "un-carrier" strategy and especially the improvements its made to its network.
The carrier did, however, continue to trade subscriber growth for financial gains, which it has assured investors is a short-term trend. It posted a loss of $77 million, or 8 cents per share, in the first quarter, albeit less than its previous year loss of $151 million at 19 cents per share. Revenue for the first quarter rose 13.1% to $7.8 billion, beating analyst estimates of $7.72 billion. At least one analyst, MoffettNathanson Analyst Craig Moffet, expects free cash flow to turn positive for the second quarter and the rest of the year. (See T-Mobile Reports Q1 Revenue of $7.8B and T-Mobile Sacrifices Costs for Customers.)
"T-Mobile is continuing to take share in gulps, and with higher share comes more operating leverage and higher profitability," Moffett writes in a research note. "Growth will eventually slow… and when it does, T-Mobile emerge vastly more profitable."
Taking on Verizon in LTE
Part of Moffett's optimism -- and T-Mobile's own -- is driven by continued improvements in T-Mobile's LTE network. It finished the first quarter with 275 million LTE PoPs, and it's on track to reach 300 million by the end of the year, which Legere says will level the playing field with its competitors. It also has 157 wideband LTE markets deployed and says its 700MHz A-block spectrum holdings have already been deployed in 55 markets. Over 92% of MetroPCS's customer base is already on the T-Mobile network, and 80% of its acquired carrier's spectrum has been re-farmed as well.
Legere and T-Mobile CMO Mike Sievert both stressed that they will have a lot more to say about Verizon and its network superiority claims in advertising and marketing going forward. The pair claims T-Mobile is already has the fastest LTE network in the country and plans to use its own maps to convince consumers it is working on better coverage as well. (See T-Mobile Aims to Close Map Gap on Its Own and Verizon Still Best Network, RootMetrics Finds.)
"It's very clear T-Mobile has the fastest LTE network inn the US. Second, everyone knows that Verizon is more expensive, more complex, less flexible and less likely to adapt to what customers want in the future," Legere said. There will be a time when T-Mobile's coverage will be superior or equal to Verizon, he added. At that time -- still to be decided as Legere didn't put a timeline on it -- the CEO believes T-Mobile will have a much better story than its bigger competitor. (See Verizon's 4G Strength Keeps It Above the Fray.)
For the year as a whole, T-Mobile said it plans to add between 3 million and 3.5 million postpaid customers, adjusting its prior forecast up from 2.2 million to 3.2 million. As for future growth outside of smartphones, Sievert said on the call: "Internet of Things, yes; wearables, absolutely; connected cars, not so much." But, more than anything, it's looking to keep the smartphone growth going throughout the year.
"We kicked everyone's ass on postpaid phones," Sievert said. "That's where the customers are, profits are and that's where we can change the industry."
— Sarah Thomas, 
, Editorial Operations Director, Light Reading
