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T-Mobile Stock Sinks on ARPU Concern

Iain Morris
10/28/2015

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.


For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.


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, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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KBode
KBode
11/3/2015 | 10:07:31 AM
Re: rimshot
Charter's been pretty distracted by the whole failed Comcast Time Warner Cable deal, followed by their own acquisition plans. Wouldn't be shocked to see them eye T-Mobile once things settle down a little bit from this latest deal. Though perhaps there's no reason for an acquisition if these Wi-Fi calling services work just fine with backup existing cellular arrangements.
Joe Stanganelli
Joe Stanganelli
11/3/2015 | 9:33:45 AM
Re: rimshot
Agreed.  The only reason AT&T didn't pull the trigger is that they couldn't -- because the feds blocked them.

Not sure about Charter though.  I'm under the impression that Charter would have already done it a year ago if they were that interested.  Probably somebody else.
KBode
KBode
11/2/2015 | 11:38:50 AM
Re: the three things T-Mobile and every other carrier must offer
Well the upcoming 600MHz spectrum is supposed to be much better at both distance (rural) and wall penetration (urban buildings), so if they spend big at auction they stand a much better chance of beefing up in those areas most consumers and analysts believe they're still weak in.
KBode
KBode
11/2/2015 | 11:37:41 AM
Re: rimshot
Absolutely not, I agree. I still think it's entirely possible they get acquired by somebody like Charter down the road, at which point all of the pro-consumer rhetoric would likely disappear, alongside the recent growth spurt thanks to this sort of faux-punk rock attitude they've cultivated.
Joe Stanganelli
Joe Stanganelli
10/30/2015 | 11:59:50 AM
Re: rimshot
Well, sure, T-Mobile has great growth potential; AT&T wanted to buy them for a reason, after all.

But the company is not one of the heavies yet.
Joe Stanganelli
Joe Stanganelli
10/30/2015 | 11:59:08 AM
Re: the three things T-Mobile and every other carrier must offer
Agreed on rural areas.  Even some suburban areas they don't seem to do well in.

And, of course, big commercial buildings.  :/
KBode
KBode
10/30/2015 | 11:38:58 AM
Re: rimshot
Verizon, to be sure.

AT&T's losing customers to T-Mobile, and T-Mobile's network coverage and fickle owner would give me pause. Still, I can see a case being made for T-Mobile having the best growth potential, especially if they're willing to spend big at the upcoming 600MHz auction and keep up the pro-consumer schtick...
KBode
KBode
10/30/2015 | 11:37:50 AM
Re: the three things T-Mobile and every other carrier must offer
It's scattered, but notable.

They scored top honors in Chicago not long ago:

http://www.dslreports.com/shownews/RootMetrics-TMobile-Has-Fastest-LTE-Network-in-Chicago-129884

And Open Signal claimed they had the fastest overall LTE speeds earlier this year:

 

http://www.dslreports.com/shownews/TMobile-Offers-Fastest-US-LTE-But-US-Speeds-Lag-Globe-132963

 

Still think they have major problems in many connecting and rural areas. I've been tempted, but still am not willing to switch from Verizon's reliability while traveling.

 
Joe Stanganelli
Joe Stanganelli
10/29/2015 | 11:50:53 PM
Re: the three things T-Mobile and every other carrier must offer
"Not to mention that T-Mobile's now topping a lot of LTE speed tests"

Do you have a link for this?  I'd be curious to know more about it...and the geography involved.  (For instance, my colleagues and I have noted a marked difference between how fast T-Mobile's service is compared to Verizon and AT&T here in MA).
Joe Stanganelli
Joe Stanganelli
10/29/2015 | 11:49:25 PM
Re: rimshot
Yeah, but let's put it this way: Someone offers you a majority stakeholding in Verizon, AT&T, or T-Mobile.  Which would you choose?
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