Friday, August 4, 2017

T-Mobile US continues market disruption

T-Mobile US delivered record service revenues, in Q2, along with strong net income, 1.3 million customer net additions and a record low churn. T-Mobile, which is the third largest wireless carrier in the United States, is clearly gaining post-paid customers at the expense of AT&T and Verizon. Moreover, T-Mobile takes credit for having pushed its two larger competitors into offering unlimited data plans. Deutsche Telekom (DT), the majority shareholder in TMUS, should be pleased. DT's financial report is due August 3rd.

Customer acquisition trends at T-Mobile US

Although T-Mobile boasts about adding more than a million mobile subscribers for 17 consecutive quarters, and more than its rivals, the absolute number of mobile subscribers in the U.S. is quite steady. It is a mature and fully saturated market. Customers jump from one carrier to the next when there is a major promotion, such as T-Mobile's 2-for-1 offer for Samsung's new Galaxy S8 during June. There are also people moving from pre-paid to post-paid plans, and vice versa. T-Mobile's total number of customers decreased slightly from Q1 and was 2.178 million more than a year earlier. Here are the figures:

Quarter
6 months ended
June 30th
(in thousands, except churn)
Q2 2017


Q1 2017


Q2 2016
2017

2016
Total net customer additions
1,333
1,142
1,881
2,475
4,102
Branded postpaid net customer additions
817
914
890
1,731
1,931
Branded postpaid phone net customer additions
786
798
646
1,584
1,523
Branded prepaid net customer additions
94
386
476
480
1,283
Total customers, end of period (1)
69,562
72,597
67,384
69,562
67,384
Branded postpaid phone churn
1.10
%
1.18
%
1.27
%
1.14
%
1.30


•   Another factor contributing to the strong customer additions for T-Mobile is its physical retail push. The company opened 1,000 T-Mobile and 1,100 MetroPCS stores during the first half of the year. T-Mobile says it now aims to open 3,000 stores during 2017.

Financial trends for Q2

Overall revenue for T-Mobile reached $10.2 billion, up 10% year over year. Service revenue increased 8% in Q2 to a quarterly record-high of $7.4 billion, while many other telecom sectors, especially in mature markets, are flat or experiencing revenue growth in the 1-3% range. The T-Mobile figures look strong in that comparison. T-Mobile believes that its revenue growth performance will outpace its rivals.

Branded postpaid phone ARPU was $47.01 in Q2, essentially flat from Q2 2016. The company says that branded post-paid phone ARPU in full-year 2017 will be generally stable compared to full-year 2016, with some quarterly variations driven by the actual migrations to T-Mobile ONE rate plans. As the biggest promoter of unlimited voice/text/data plans, T-Mobile is largely responsible for this environment of flat ARPU and rising data traffic. With everything included on one bill, it is likely the fixed ARPU number will become a constant for the U.S. market.

Branded prepaid ARPU was a record-high $38.65 in Q2 2017, up 2.1% from Q2 2016, primarily due to the continued growth of MetroPCS customers. T-Mobile usually plays the role of the aggressor in pricing wars. In the pre-paid space, however, the company seems to have found its bottom line, saying it has made a deliberate decision not to respond to irrational offers in the marketplace from some of our competitors.

T-Mobile continues to generate higher net income and earnings per share. Net income increased 158% year-over-year in Q2 2017 to a strong $581 million, while net income as a percentage of service revenue was 8% in Q2 2017, up from 3% in Q2 2016. Meanwhile, diluted earnings per share (EPS) increased 168% year-over-year in Q2 2017 to $0.67.

John Legere, T-Mobile’s outspoken president and CEO, commented:

-    "We just delivered a quarter with record service revenue, record-low churn, strong net income and record Adjusted EBITDA - all while leading the industry in post-paid phone growth. On top of that, our network just keeps getting better and faster while the Duopoly's networks seem to be choking after we forced them to go unlimited".

Network update

T-Mobile's 700 MHz deployment is now essentially complete, with live coverage in 575 market areas covering 271 million people. The next big project is the 600 MHz rollout.

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