T-Mobile's aggressiveness brings in 1.65 million new customers, but also costs them $20 million in Q4

T-Mobile's aggressiveness brings in 1.65 million new customers, but also costs then $20 million in Q4
By Derek Kessler on 25 Feb 2014 01:27 pm
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The old adage goes that you have to spend money to make money, and that's exactly what T-Mobile's been doing. Today the fourth-place US carrier reported their Q4 2013 earnings and the results were mixed. While they added 1.65 million new customers — good for the long haul — the hyper-aggressive marketing and incentives resulted in a quarterly loss of $20 million. Granted, that's on revenue of $6.8 billion for the quarter, an increase of 39% from this time last year. But a loss is a loss. T-Mobile CEO John Legere, not one for mincing words, said:

"Customers are fed up with the old ways and are voting in favor of choice, innovation and doing business with a company that cares about them and is willing to earn their business. For shareholders, we transformed the company into a fierce, growing competitor that is changing the wireless industry and creating significant value."

Of course, it remains to be seen how long T-Mobile will be able to keep up this aggressive path of conquest. It's expensive to buy new customers as they have for the past year (as these results have borne out), but the changes that T-Mobile has implemented to their business have created waves in the American carrier landscape and might finally be changing things for the better.

T-Mobile US Reports Fourth Quarter and Full Year 2013 Results and Third Consecutive Quarter of Over One Million Net Customer Additions

More than 1.6 million net customer additions including 869,000 branded postpaid net customer additions

Fourth Quarter 2013 Highlights:

  • Total net customer additions of more than 1.6 million
  • 981,000 total branded net customer additions with 869,000 branded postpaid net additions, representing the best branded postpaid performance since the fourth quarter of 2005
    • Improving branded postpaid phone net additions of 800,000 and 69,000 mobile broadband net additions
    • Accelerating branded prepaid customer growth with 112,000 net customer additions
  • Continued low branded postpaid churn of 1.7%, flat quarter-over-quarter and down 80 basis points year-over-year, resulting in the best quarter of year-over-year churn reduction in 2013
  • Delivered third consecutive quarter of sequential service revenue growth
  • Strong Adjusted EBITDA of $1.239 billion and Adjusted EBITDA margin of 24% combined with significant customer growth
  • Successful modernization program delivers nationwide 4G LTE network coverage to 209 million people in 273 metro areas

Full Year 2013 Highlights:

  • Total net customer additions of more than 4.4 million on a pro forma combined basis
  • 2.4 million total branded net customer additions including 2 million branded postpaid and 359,000 branded prepaid customers on a pro forma combined basis
  • Branded postpaid churn of 1.7%, down 70 basis points year-over-year
  • Adjusted EBITDA of $5.317 billion and Adjusted EBITDA margin of 26% on a pro forma combined basis
  • Successful introduction and execution of major Un-carrier initiatives
  • Rapid progress with the integration of MetroPCS by expanding the brand into 30 additional markets
    • Currently 3.5 million MetroPCS customers on the T-Mobile network
  • Met or exceeded all company guidance targets for 2013

BELLEVUE, Wash. - February 25, 2014 - T-Mobile US, Inc. (NYSE: TMUS) today reported fourth quarter and full year 2013 results demonstrating that its Un-carrier strategy is successfully delivering results. The Company has aggressively focused on eliminating customer pain points and is delivering continued growth in its total and branded customer base through the successful execution of this strategy.

T-Mobile reported more than 1.6 million total net customer additions with 981,000 total branded net customer additions for the quarter, including branded postpaid net additions of 869,000 and branded prepaid net additions of 112,000. The strong branded postpaid net addition performance is the result of continued momentum in gross additions, which were up 15% quarter-over-quarter and 80% year-over-year, and the continuation of low branded postpaid churn, which was 1.7% in the quarter. For the full year 2013, on a pro forma combined basis, T-Mobile added more than 4.4 million total customers and more than 2 million branded postpaid customers.

"Our performance in the fourth quarter and the full year is clearly proving that we have our strategy right and that we are executing it well," said John Legere, President and CEO of T-Mobile. "Customers are fed up with the old ways and are voting in favor of choice, innovation and doing business with a company that cares about them and is willing to earn their business. For shareholders, we transformed the Company into a fierce, growing competitor that is changing the wireless industry and creating significant value."

Executing on the Un-Carrier strategy to drive results:

T-Mobile began rolling out its Un-carrier offers in March 2013. The Company's key Un-carrier initiatives were as follows:

  • On March 26, 2013, the Company announced its radically simplified unlimited "Simple Choice" service plan with no annual service contract. Device financing with the Equipment Installment Plan (EIP) provides customers with low out-of-pocket costs on some of the most popular devices available in the US wireless industry.

  • On July 10, 2013, the Company unveiled JUMP!(TM), a groundbreaking approach to more frequent phone upgrades. T-Mobile had more than 3.6 million customers enrolled in JUMP! at the end of the fourth quarter of 2013.

  • On October 9, 2013, the Company announced that it would make "the world your network - at no extra charge" - with unlimited data and texting worldwide in 100+ countries for Simple Choice customers. At the same time, T-Mobile announced that it had delivered nationwide 4G LTE in 233 metro areas covering 202 million people. Since then, 4G LTE coverage has increased to 273 metro areas covering 209 million people.

  • On October 23, 2013, the Company un-leashed tablets and revolutionized how customers buy and use tablets with free data for life. Customers receive 200 MB of free data every month with any tablet for as long as they own and use the device on T-Mobile's network. In the fourth quarter of 2013, T-Mobile had 69,000 mobile broadband branded postpaid net additions, principally composed of tablets, compared to 5,000 in the third quarter of 2013.

  • On January 8, 2014, the Company announced that it would reimburse Early Termination Fees (ETFs) for individuals and families who make the switch to T-Mobile and trade in an eligible device. The plan also offers a trade-in value for customers' phones.

In January 2014, the Company entered into agreements to purchase certain 700 MHz A-Block spectrum licenses from Verizon Wireless for approximately $2.4 billion in cash and the transfer of certain AWS and PCS spectrum licenses held by T-Mobile. Combined with the Company's existing Boston A-Block holdings, T-Mobile will have low-band spectrum covering approximately 158 million people, which will allow it to further improve the customer experience in major metro areas and boost in-building and breadth of network coverage. The transaction is expected to close in mid-2014.

Operational and Financial Highlights for the Fourth Quarter of 2013

T-Mobile ended the fourth quarter of 2013 with approximately 46.7 million customers, an increase of 1.645 million total customers from the end of the third quarter of 2013. T-Mobile significantly grew its total branded customer base, with 981,000 net customer additions during the quarter. Branded postpaid net customer additions of 869,000, including 800,000 phone net additions, continued the strong momentum seen in the second and third quarters, reflecting continued low branded postpaid churn and significantly higher gross additions. The Company's network modernization program and strong execution of its Un-carrier strategy contributed to a continued low branded postpaid churn rate of approximately 1.7% for the fourth quarter of 2013, flat versus the third quarter of 2013 and an improvement of approximately 80 basis points from 2.5% in the fourth quarter of 2012. The branded prepaid business exhibited improved customer growth with 112,000 branded prepaid net customer additions in the fourth quarter of 2013.

During the fourth quarter of 2013, the quality of T-Mobile's customer base and receivables portfolio continued to improve as a result of the Un-carrier strategy implementation and the effect of credit tightening over the past two years. 54% of EIP receivables were classified as Prime at the end of the fourth quarter of 2013, compared to 43% at the end of 2012. For the full year 2013, service bad debt expense was down 51% year-over-year. The Company's recent Un-carrier 4.0 launch has seen particularly strong uptake among the highest credit quality customers.

Total revenues for the fourth quarter of 2013 increased by 39.1% year-over-year, principally due to the inclusion of MetroPCS results in the fourth quarter of 2013, and 10.2% compared to pro forma combined total revenues for the fourth quarter of 2012, primarily due to higher equipment sales revenues on record smartphone sales. Total smartphone sales, including sales to branded postpaid and prepaid customers, were a record 6.2 million units in the fourth quarter of 2013, equivalent to 91% of total units sold, up from 88% in the third quarter of 2013. This represents a penetration of 81% of the total branded customer base at the end of the fourth quarter of 2013, up from 78% at the end of the third quarter of 2013. On a sequential basis, total revenues increased by 2.1%, again principally due to higher equipment sales revenues on record smartphone sales. The portion of branded postpaid customers on Value or Simple Choice plans was 69% as of December 31, 2013, up from 61% as of September 30, 2013.

Service revenues for the fourth quarter of 2013 grew by 25.2% year-over-year primarily due to the inclusion of MetroPCS results for the full quarter. Service revenues increased by 0.6% quarter-over-quarter primarily due to growth of the Company's customer base, offset in part by increased adoption of Value and Simple Choice plans, which have lower monthly service charges. Compared to pro forma combined service revenues for the fourth quarter of 2012, service revenues for the fourth quarter of 2013 declined 1.1% year-over-year. This represents a significant improvement compared to the third quarter of 2013 when service revenues declined by 4.6% year-over-year on a comparable basis. T-Mobile's service revenues have grown in each of the last three quarters on a sequential basis, reflecting the growth of the Company's customer base.

Branded postpaid average revenue per user (ARPU) decreased quarter-over-quarter by $1.50 or 2.9% to $50.70, primarily as a result of the continued rapid adoption of Value and Simple Choice plans, which deliver lower monthly ARPU due to lower service charges compared to bundled equipment and service plans. Branded prepaid ARPU for the fourth quarter of 2013 increased by $0.13 or 0.4% to $35.84 compared to the third quarter of 2013.

Adjusted EBITDA for the fourth quarter of 2013 was $1.239 billion, a 7.8% decline from the third quarter of 2013, reflecting strong customer growth and increased promotional expenditures. On a sequential basis, branded cost per gross addition (CPGA) rose by $10 to $317 reflecting increased promotional expenditures during the holiday season as well as higher equipment losses from growth in sales of higher priced smartphones. Branded cost per user (CPU) declined by $1 to $24 versus the third quarter of 2013 reflecting customer growth and ongoing strong cost control. In alignment with industry practice, Branded CPGA and Branded CPU will no longer be reported after the fourth quarter of 2013.

Cash capital expenditures for the fourth quarter of 2013 were $882 million, down from $1.0 billion in the third quarter of 2013 and $898 million in the fourth quarter of 2012. Cash capital expenditures reflect T-Mobile's continued investment in network modernization and 4G LTE deployment.

Operational and Financial Highlights for the Full Year 2013

On a pro forma combined basis, the Company added more than 4.4 million total customers in 2013, including 2.4 million branded net customer additions, which consisted of more than 2 million branded postpaid customers and 359,000 branded prepaid customers. This compares to a loss of 256,000 total customers in 2012, including losses of more than 1.5 million branded customers, which consisted of 2.1 million branded postpaid customer losses and 548,000 branded prepaid customer additions.

On a pro forma combined basis, total revenues increased by 5.3% year-over-year to $26.1 billion in 2013, while service revenues declined by 5.6% year-over-year to $20.5 billion in 2013, reflecting the shift from service revenues to equipment sales revenues driven by adoption of Value and Simple Choice plans.

On a pro forma combined basis, Adjusted EBITDA declined by 16.9% to $5.3 billion in 2013, while the Adjusted EBITDA margin declined to 26% on a pro forma combined basis from 29% in 2012, reflecting the very significant customer growth the Company experienced in 2013.

Cash capital expenditures increased by 13.2% to $4.2 billion on a pro forma combined basis due to the continued network modernization and 4G LTE deployment.

MetroPCS Combination

T-Mobile has continued to make rapid progress on the expansion and integration of MetroPCS. On July 25, 2013, the Company announced the strategic expansion of the MetroPCS brand with the planned launch of 15 new geographic markets. On November 21, 2013 the Company launched the MetroPCS brand in 15 further markets, bringing the total of expansion markets to 30. The Company has opened more than 1,700 distribution points in these new markets as of December 31, 2013.

The Company began selling T-Mobile-compatible devices to MetroPCS customers in the second quarter of 2013 through MetroPCS branded distribution points and has already transitioned approximately 3.5 million new and existing MetroPCS customers to the T-Mobile network.

2014 Outlook Guidance

For the full year of 2014, T-Mobile expects Adjusted EBITDA to be in the range of $5.7 to $6.0 billion. Cash capital expenditures are expected to be in the range of $4.3 to $4.6 billion.

With the success of our Simple Choice plan and the continued evolution of the Un-carrier strategy, branded postpaid net additions for 2014 are expected to be between 2 and 3 million. With this growth and rate plan migrations, the penetration of Value/Simple Choice plans in the branded postpaid base is projected to be between 85% and 90% by the end of 2014.

Quarterly and Full Year Financial Results

For more details on T-Mobile's fourth quarter and full year 2013 financial results, including its "Investor Quarterly" with detailed financial tables and the required non-GAAP reconciliations, please visit T-Mobile US, Inc.'s Investor Relations website at http://investor.T-Mobile.com.

For comparison purposes, pro forma combined measures presented in this release include the combined results of T-Mobile USA and MetroPCS to reflect the business combination for the relevant periods. See Investor Quarterly for further details.

Topics: T-Mobile Carriers

57 comments

rickster2611

BlackBerry slanderous campaign cost them.

Posted via CB10

RP Singh

Yet it did and continues to do so, doubters gonna doubt.

Sent from my iPuh-lease-as-IF

raino

It'll have some impact on Q1 results, I think. Not everyone trading in an old BB's getting a Z10 or a Q10, sure, but they ARE selling these phones (whatever phones) at lower profits, or even at a loss. I've heard of people buying Lumia $100 521s, and getting $100 statement credits, since the offer is for $200. Free phones on a carrier that doesn't subsidize.

mrlahjr

The first thing they should be doing is pushing out10.2.1

Posted via CB10 on my Z10

TranceRomance

It's coming.....I hope.

Posted via CB10 with my T-Mobile USA  ‎BlackBerry Q10...SON! (Soon to be the almighty Z30!)

QuIcKsIlV3r

i see what you did there, and you failed...

RP Singh

Did he ever!

Sent from my iPuh-lease-as-IF

TranceRomance

Ooooh!

Posted via CB10 with my T-Mobile USA  ‎BlackBerry Q10...SON! (Soon to be the almighty Z30!)

Mel25

Dude is full of shit if he was really about the people.

He would push every company's platform.

Have every phone avaliable!!

F**k t-mobile!!

It's not just BlackBerry they are shitting on I heard windows customers complaining about phone selection as well.

Posted via CB10

Hidjk

"Customers are fed up with the old ways and are voting in favor of choice"

Where's the Z30?

Let's see would you like this Apple or that Apple...

Lol

www.livingtruth.ca www.carm.org

RP Singh

'zactly

Sent from my iPuh-lease-as-IF

JTWJ

That's what I've been saying. I sent Legere a tweet telling him if he was really apologetic about the way T-Mobile had treated BlackBerry customers he would offer the Z30. I'm really leaning towards them since they are at least offering the Z10 again, but I would be on T-Mobile yesterday if they offered the Z30.

ymb

Still waiting for 10.2.1

Posted via CB10

rickster2611

People are fed up with the lack of choice of devices.

Most carriers are pushing people towards Samsung and Apple.

So who are you looking out for? Definitely not the consumer.

Posted via CB10

Jonathank

The funny thing is it didn't cost them ANYTHING because ATT paid the Billions for the break up fee... in other words ATT is paying off their own contracts lol.... great move

Posted via CB10

Prem WatsApp

Yep.

And $20m is just a rounding error for a company that size. They could have easily buried that in a GAAP somewhere, I guess.

iPhone for me? Scr... ahem Q that! (posted from the latter)

birdman_38

There's just one too many carriers out there. Contraction is needed.

raino

Yeah...because fewer always equals better for the customers.

DJRikko

Yeah, because here in Canada we have the Big Three and it ruins everything. We should only have one... I bet then no one would get ripped off.

SAID NO ONE EVER.

Posted via CB10

FOIA Gras

+1000!

Posted via CB10 from my Z10 OS 10.2.1.1955

freddysrevng3

Did Legere get the Z30 at TMob yet?

TranceRomance

Nope! I got tired of waiting and got mine from Amazon.

Posted via CB10 with my T-Mobile USA  ‎BlackBerry Q10...SON! (Soon to be the almighty Z30!)

Prem WatsApp

Happy with it? How much?

iPhone for me? Scr... ahem Q that! (posted from the latter)

Prem WatsApp

Ok, little further down I read you haven't got it yet.

iPhone for me? Scr... ahem Q that! (posted from the latter)

TranceRomance

Haha! I think by tomorrow or friday.

Posted via CB10 with my T-Mobile USA  ‎BlackBerry Q10...SON! (Soon to be the almighty Z30!)

TranceRomance

$499 and amazon approved me for $1000 bucks and won't have to pay for a year. I bought some cool DJ toys and phone accessories with the other $500.

Posted via CB10 with my T-Mobile USA  ‎BlackBerry Q10...SON! (Soon to be the almighty Z30!)

JTWJ

I think that is the route I am going to have to go as well. I think quite a few people would jump to T-Mobile if they offered the Z30. The last thing I want to do is sign up with Verizon.

9lives353

I just quit T-Mobile (and Jump) because Legere made it clear he was not interested in stocking Blackberry phones. Bought a Z30 on eBay, flipped back to AT&T and for 60 bucks I'm getting 2GB and unlimited talk/text on GoPhone. The model STA100-5 even gets AT&T LTE in my area. I get LTE in my office now where I constantly had Edge and no coverage at all with Legere. I was very supportive of Legere and T-Mo initially but he's just a bellend.

TranceRomance

Yeah sorry to hear that man. I work for T-Mobile and feel your pain. I love working for them though... great plans! But a year ago I hated BlackBerry until a Rep championed me and I was hesitant at first but the very first day I was hooked. I wouldn't have cared about BlackBerry's future a year ago but I'm so glad I jumped. Haven't looked back. I ordered the STA 100-5 as well. 4G LTE compatible with T-Mobile.

Posted via CB10 with my T-Mobile USA  ‎BlackBerry Q10...SON! (Soon to be the almighty Z30!)

9lives353

Nothing against the T-Mo staff who were always v good. In fact when I originally joined almost a year ago I bought a Z10 largely because the rep had one and really liked it. I moved to Note 3 on Jump in October but kind of missed BB10. I just enjoy using it more than Android. Anyway the Z30 is enjoyable, battery life not far off the Note 3 (16 hours in and I have 50% left) and nearly all the apps I've installed via Snap have worked.

Jonathank

It's never a loss when ur paying money that was handed to u.. if someone gave me a billion and I spent a billion It wouldn't necessarily be a loss... if I spent over the billion then I'm dipping into my own pocket which will result in a loss.... like the casino... go in with 10 Win 500 and then loose 490... did i really take a loss?? not in my eyes

Posted via CB10

raino

That money has to be long gone. They've done spectrum refarms (1700 UMTS to LTE, 1900 GSM to UMTS,) bought band 12 LTE spectrum from Verizon, plus these UnCarrier shenanigans.

TranceRomance

I get my Z30 in a couple days! Woo! I may keep my Q10 as a backup phone though. How is the Z30? I've only got to admire it on paper.

Posted via CB10 with my T-Mobile USA  ‎BlackBerry Q10...SON! (Soon to be the almighty Z30!)

bspence87

It's amazing. My plan was to keep my Z10 as a backup, but after a week, the only purpose I had for it was admiring it on my nightstand.

I ended up pushing it on my girlfriend, who loves it!
She also asks about my Z30 a lot. "It's so big, I don't know if I can handle it". "I remember you saying that once before.."

Prem WatsApp

I am tempted, too. Touchscreen temptation. Hope my Z10 will last me till the big one hits.

iPhone for me? Scr... ahem Q that! (posted from the latter)

Prem WatsApp

Z10 a bit to small as a "tablet", Playbook too bulky, Z30 phablet ideal to replace both.

I just don't know where to sort in my Q10, keyboard is such a different animal.

iPhone for me? Scr... ahem Q that! (posted from the latter)

TranceRomance

Yeah I really love my Q10! I for sure will keep as a backup or if the Z30 doesn't work out...(doubt that will happen) gotta have a backup phone.

Posted via CB10 with my T-Mobile USA  ‎BlackBerry Q10...SON! (Soon to be the almighty Z30!)

Drmoe

Bunch of morons... fail!

Posted using the best phone ever, the Z30!

drewood66

Constomer arent loyal to the service provided by T-Mobile, they are loyal to the price/pre-paid price. As soon as Verizon, Sprint or AT&T offer cheap$ unlimited everything UM GONE!

castano22

Have you checked out the framily plan from Sprint?

Posted via CB10

raino

That's true. If Verizon and AT&T decided to match TMO on prices tomorrow, they would simply crush them. TMO's counting on them to NOT do this.

Sprint...not so much.

LyBerry

I would take that loss for that subscriber increase. Each one is paying what, $40 - $50 each at minimum per month? They made their money back right away. Smart move to me.

Posted via CB10

ANTIABE

Who's t-mobile or...something?

Posted via CB10

idon12no

Device selection and the guy's business decisions aside, you can't deny that T-Mobile's moves have forced the other carriers to switch things up and try to offer their customers better deals, and that is most def a good thing.

Posted via CB10

raino

Their strategy is not very sustainable for the long run. They need money (higher ARPU) to buy spectrum and refarm, and if you're not doing these two things, your networks fall behind. They did have a low churn rate, which is very good. But new spectrum won't come cheap, especially with the punishing mood AT&T and Verizon will be in at the next auction.

HarryLime

Man lots of T Mobile hate on CB recently. I'm so happy with TM after leaving those bastards at Sprint last year. I bought a Z10 on Black Friday for $200 and I'm paying them for service only and compared to Sprint it's light years better. Sure I wish they carried the Z30 and I wish they had BlackBerry phones displayed prominently but overall I'm satisfied with them. Guess it's about expectations and after Sprint mine were low.

Posted via CB10

FOIA Gras

Gotta agree with you completely on that. I bailed on TMO for Sprint in 2011 to avoid being handed over to AT & T. Worst consumer decision I ever made. Sprint network is a nightmare in the Portland OR/Vancouver WA area. So glad to be back at TMO although a little disheartened at the lack of BlackBerry love prior to today's announcement.

Posted via CB10 from my Z10 OS 10.2.1.1955

bap3221

Sure they lost money. Sometimes that's what happens when they offer to pay your bill to switch with them.

But you get more customers and loyalty!

Posted via CB10

axeman1000

We should go on the ceos twitter account and post they are going under and will be sold soon since they are losing money lmao
That's what their staff says about BlackBerry!

Hate solves nothing, Respect gains everything!

VanAwful

Hahaha! Choice? Innovation? Yeah, so long as you only want Apple products. They no longer care about choice an innovation. If they did, we would still see BB10 devices on the TMO consumer online store.

Posted via CB10

VanAwful

OMG, OMG!!! Just went to the TMO website. Guess what!? They DID listen. New Z10 and Q10 units are back in the online store and marked for $0 up front cost. :)

Posted via CB10

vashawn

I have tmoible and I am still waiting for the 10.2 update, I can't wait to use the picture screen unlock

Posted via CB10

mrmimz

Don't care about 1.65 million new customers... where the fu)k is my Z30

Posted via CB10

Daryll Davis

Their "non contract" is a scam, unless you BYOD you pay more over a 24 month contract period just to say that you aren't on contact. The unlimited plan is $80 + $25 if you have a new phone + taxes = $2520 BEFORE taxes. Even though there's no "ETF" the remaining balance on your phone is due if you cancel service, which can be more than a ETF if you have a premium phone. The jump program allows you to upgrade after 6 months, but you have to have half of your phone paid off first. So if you're paying $25 per month towards a $600 phone, and only 6 months in you've paid $150, meaning you have to pay another $150 to be able to upgrade IF you qualify for $0 down. They chose their words very wisely and counted on the words "Non Contract" and it's worded so far....Well done T Mobile

Posted via CB10