T-Mobile Sacrifices Costs for Customers
Comment (10)T-Mobile's "uncarrier" moves paid off in the first customer as it managed to add 2.4 million new customers, including 1.3 million postpaid subscribers. But the additions came at a cost.
T-Mobile US Inc. lost $151 million, or 19 cents a share in the first quarter, as it stepped up its promotional efforts, compared to a $106 million profit at 20 cents a share in the year-earlier quarter. Its shares, however, were up 7.5% to $31.50 in early market trading on Thursday.
The share climb was a reflection of the net additions, as well as the revenue bump T-Mobile received from closing its purchase of contract-free operator MetroPCS. Revenue in the first quarter grew 47% to $6.9 billion. Without MetroPCS's results in the mix, revenue would have risen 19%. T-Mobile also managed to add 465,000 prepaid customers with help from MetroPCS.
The first quarter was T-Mobile's fourth consecutive quarter with over 1 million net additions, and the first time it's ever passed the 2 million mark. It was clear from Verizon Wireless and Sprint Corp. (NYSE: S)'s earnings last week that the promotional moves in the market being made by the self-proclaimed "uncarrier" were having an effect. Only AT&T Inc. (NYSE: T), its biggest target, has yet to feel the squeeze. (See Sprint: LTE TDD Speed Boost Coming Soon, Verizon Loses Its Postpaid Net Add Crown, and AT&T Gets 81% of Subs Off Unlimited Data.)
T-Mobile is now approaching 50 million customers, closing the gap on potential merger partner Sprint, which ended the first quarter with 54 million customers. T-Mobile says it plans to add 2.8 to 3.3 million branded contract customers by the end of the year. (See T-Mobile Pours Cold Water on Sprint's Spark.)
— Sarah Reedy, Senior Editor, Light Reading
So, yes they have short-term hurt, but it seems with a longer-term plan in place. If it will work is still an open question. Also could be a ploy to be a more attractive take-over purchase. They appear to have a good game plan either way at this point.
And, here's what Legere said (paraphrased):
"This is the start of competition, and, again, don't confuse yourselves, the big are still the biggest. These are big huge people who are probably calculating ways they can protect their 55% in growing EBIDTA margins...
It's matter of when, not if. It's not just among the 4 you see, but multiple other tangential players sitting on the periphery of the industry looking in. we've been consistent on that with no clear statement on timing. Otherwise, there are multiple paths we need to look very hard at from the standpoint of capital and deployment. But when you are growing like we are, we think it's a good hand to play."
Now they only rarely cut prices -- and charge for things that used to be free -- and are profitable. Telecom is a different industry, but business is business.
"There are plenty of cynics including our competitors that will convince you we're buying growth in a non-economic way, but the opposite is true. Bringing in the highest quality customers in our history at a marginal cost that is a little higher as well. High quality customers with great returns."
