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T-Mobile Beats Sprint on Subs, Eyes Verizon on Network

Sarah Thomas
4/28/2015

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."


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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, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editorial Operations Director, Light Reading

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sarahthomas1011
sarahthomas1011
4/29/2015 | 2:09:17 PM
Re: I'll believe it when I see it.
Verizon's churn was 1.03% and T-Mobile's was 1.3%, so I'm not quite 50% higher. I also don't think they are competing solely on price, but the network is definitely the next battleground.
Pete_S4
Pete_S4
4/29/2015 | 12:28:32 PM
I'll believe it when I see it.
When you chase custimers solely on price, how ae you getting the money for massive massive network upgrades?  T-Mobile's churn rate is 50% higher than Verizon, new customers cost more money than retaining existing ones.  As their netwok loads up, they will need to go back into add carriers or sites; much less expand their coverage into the rural areas where they are the weakest.

T-Mobile is my recommendation for cost conscience consumers, but this is a lot of bravado for a company that tried to sell itself twice and had to drop its prices substantially to gain customers.
thebulk
thebulk
4/29/2015 | 1:21:18 AM
Re: T-Mo & the IoT
@Mitch, I don't really know, it doesnt make much sense to me from a netwrok perspective, unless they are looking at it as a retail play then connected cars wouldnt really fit well but things like wearables and smart home sensors might. 
Mitch Wagner
Mitch Wagner
4/28/2015 | 4:09:39 PM
Re: T-Mo & the IoT
Hard to believe we're close to saturation on the smartphone market, even inside the US and rest of the developed world. 

Of course when you look at the global market, we've only begun connecting people, even with feature phones. 
Mitch Wagner
Mitch Wagner
4/28/2015 | 4:07:57 PM
Re: T-Mo & the IoT
thebulk - I was wondering the same thing. Why is T-Mobile bullish on those other IoT technologies but bearish on connected cars?
thebulk
thebulk
4/28/2015 | 3:22:32 PM
Re: T-Mo & the IoT
I also think it is interesting that they are not super excited about connected cars, I would have thought that to be a very natural fit for providers. 
thebulk
thebulk
4/28/2015 | 3:20:08 PM
Re: T-Mo & the IoT
It is interesting to see such low churn, and also how they want to go head to head with Verizons network. That might end up playing out in very interesting ways, I think the media fight is going to get dirty. 
sarahthomas1011
sarahthomas1011
4/28/2015 | 1:10:51 PM
T-Mo & the IoT
Sievert's comments on other non-smartphone devices were interesting (yes to IoT and wearables; no to connected cars). AT&T and Verizon make a big deal of IoT and new verticals, because that is where the growth is coming from for them -- and, Legere says, to distract from losing smartphone customers. 

That said, some analysts still see AT&T and Verizon as better positioned for future growth because of this focus. When smartphones reach saturation, IoT will be what matters most, even for T-Mobile.

TBR says, "Despite T-Mobile's current success, AT&T and Verizon are presently better positioned to sustain revenue growth in the long-term due to their higher focus on expanding into markets such as the Internet of Things (IoT) and video. TBR believes the Un-carrier for Business plans will allow the company to gain headway in the enterprise segment and will help the company compensate for its lack of wireline business services. Traction gained in the enterprise phone and tablet segments through Un-carrier for Business will position T-Mobile to introduce new enterprise IoT solutions that will help to drive device connections over the next five years. TBR also anticipates T-Mobile will launch new IoT services geared towards consumers in 2H15 such as a connected car offering."
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