T-Mobile Stock Sinks on ARPU Concern

T-Mobile's stock fell by 5.7% in trading on the Nasdaq yesterday after investors were left disappointed by the operator's third-quarter results, which showed signs of pressure on customer spending.

Now the country's third-biggest mobile operator by customer numbers, T-Mobile US Inc. has been cutting prices to lure subscribers away from bigger rivals AT&T Inc. (NYSE: T) and Verizon Wireless , while its family plans also appear to have weakened average revenue per user (ARPU).

Among postpaid customers, that particular metric fell to $47.99 per month in the third quarter, from $49.84 in the same period last year, with T-Mobile blaming the slump on the rising adoption of its low-cost Simple Choice tariffs as well as promotions "targeting multiple phone lines."

The ARPU decline may be especially irksome to investors because Braxton Carter, T-Mobile's CFO, had previously expressed confidence that ARPUs would stop declining in 2015.

Legere insisted that ARPU was "basically flat" during an earnings call with analysts. "It's kind of in line with what we'd expect for the expansion that's taking place," he said, according to a Seeking Alpha transcript. "We're closing the gap on Verizon and others and their family plan."

Fueled by customer growth -- with T-Mobile adding nearly 1.09 million postpaid customers and 595,000 prepaid customers in the quarter -- total revenues rose by 6.8%, on a year-on-year basis, to $7.85 billion, but analysts had been expecting as much as $8.29 billion, according to a Reuters poll.

Thanks to sales growth and cost efficiencies, T-Mobile also swung to a net profit of $138 million from a loss $94 million in the year-earlier quarter, although the figure was sharply down on the $361 million the operator reported in the second quarter.

More impressive was a 10.9% rise in service revenues, to $6.3 billion, stemming from the take-up of plans -- under T-Mobile's Uncarrier initiative -- that separate device payments from service charges.

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T-Mobile claims to be way ahead of AT&T, Verizon and Sprint Corp. (NYSE: S) when it comes to service revenue growth, although its bigger rivals are also reporting healthy increases in customer numbers. (See The AT&T Frankenstein Is Doing Fine, Thanks and Verizon to Start Deploying LTE-U in 2016.)

AT&T boasted more than 2.5 million net wireless additions when reporting its own third-quarter results earlier this month, while Verizon managed about 1.2 million.

Including its wholesale business, T-Mobile's overall number of net additions was around 2.3 million, giving it a total of 61.2 million customers.

Across its business and consumer divisions, AT&T now serves a total of 126.4 million wireless customers, with Verizon claiming about 110.7 million retail subscribers.

While those companies still have a long lead over T-Mobile, Legere says that "porting ratios," which show the ratio of customers gained from and lost to rival networks, still favor T-Mobile.

"We're taking customers from everybody," said Legere. "Who we're taking the most customers from is AT&T."

Legere told investors that he expected Sprint -- which T-Mobile recently overtook to become the country's third-biggest mobile operator -- to post some positive phone results when it publishes earnings on November 2.

He also took aim at Verizon's recently introduced Go90 video service, noting the app has plummeted in Apple Store rankings since it was launched. "That's clearly not going to fly and it's not going to be their bridge to profitability in 2017," he said. "Serial TV sold on a cross-selling basis when your phone business is completely declining is not a strategy." (See Verizon's Go90 Is Live – Will Anyone Watch?)

— Iain Morris, , News Editor, Light Reading