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Carrier Scorecard: T-Mobile International

With Deutsche Telekom AG (NYSE: DT)'s first quarter results now out, it's time for Unstrung to take a good look at the German operator's mobile business T-Mobile International AG and grade it on its performance. (See Deutsche Telekom Reports Q1.)

T-Mobile is the big bright spot for the German operator at the moment as chief executive René Obermann confronts striking union workers who disagree with his plans to reform the company. More than half of Deutsche Telekom's revenue, about 53 percent, now comes from T-Mobile. (See Deutsche Telekom Faces Strike.)

In our last scorecard, we gave T-Mobile a B+ grade, because of strong growth momentum in revenues, operating profits, and customers. (See Carrier Scorecard: T-Mobile.)

What do the numbers tell us this quarter? (See Table 1.)

T-Mobile's revenues were up 10.9 percent in the first quarter to €8.4 billion (US$11.4 billion), compared to €7.6 billion ($10.3 billion) in the first quarter of 2006. But operating profit increased just 1 percent this quarter to €1.07 billion ($1.44 billion), compared to €1.06 billion ($1.43 billion) in the first quarter last year.

Across all of its operations, average revenue per user (ARPU) was down 11.1 percent compared to a year ago. But the ARPU picture is mixed at T-Mobile. In its home market, ARPU was down 10 percent this quarter to €18 ($24.4) per month, but in the U.K., ARPU was up 15.4 percent to €30 ($40.6) per month.

T-Mobile is under the most price pressure in Germany, where revenues were down this quarter by 2.6 percent to €2 billion ($2.7 billion). The operator cites an overall 11 percent decrease in price levels in the market and regulated reductions in mobile termination rates as sources for the problems. T-Mobile also points to higher subscriber acquisition and retention costs in this market.

But the operator's fixed-mobile substitution service in Germany called [email protected] is growing. T-Mobile added 251,000 subscribers to the home zone service, which brings the total to 1.41 million. (See Deutsche Telekom Cancels FMC Service.)

In the U.K., T-Mobile (UK) reported revenues of €1.17 billion ($1.6 billion), which is a 12.9 percent increase. The operator points to a successful take up of its new Flext service packages, which now have 1.6 million customers. It claims to be the only U.K. mobile operator to have HSDPA deployed across all of its 3G network and to be rolling out 3-Mbit/s services. The operator is also upgrading its network of WiFi hotspots to 8 Mbit/s.

T-Mobile's biggest markets (by subscribers) are Germany, the U.S., and the U.K. and account for 70 percent of the operator's subscribers. T-Mobile also has operations in Austria, the Netherlands, the Czech Republic, Poland, Hungary, Slovakia, Croatia, Macedonia, and Montenegro. (See Table 2.)



The best performing market in terms of subscriber growth is the U.S. this quarter, where T-Mobile US Inc. added nearly 1 million customers, bringing the total number of subscribers there to 26 million. (See T-Mobile USA Adds Nearly 1M Subs.)

T-Mobile says myFaves is the "most successful offering" of T-Mobile in the U.S. It allows customers to personalize their five favorite contacts with icons or photos on their mobiles. The service will be introduced in Europe later this year.

T-Mobile is also gaining ground on mobile data services. Non-SMS data revenue was up 31 percent this quarter, increasing from €321 million ($435 million) to €422 million ($571 million). In its European markets, T-Mobile now has 2.2 million customers for its mobile Internet web'n'walk service, with 206,000 customers added this quarter.

Two of T-Mobile's biggest markets -- the U.S. and the U.K. -- are clearly on a roll in terms of subscriber and revenue growth and service innovation. Germany is struggling with declining revenues. And overall, operating profits did not impress this quarter.

Given the difficulties in the German market, Unstrung marks T-Mobile International down to a B grade this quarter.

— Michelle Donegan, European Editor, Unstrung

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