T-Mobile's discounted plans boost subscriber adds

Reuters

T-Mobile US Inc said it added a record number of customers in the first quarter, blowing past its competitors as the company's aggressive discounts lured in subscribers.

T-Mobile (Bellevue, WA, USA) shares jumped 7.3 percent as the company that has billed itself as the "uncarrier" signed up 2.4 million new customers in the first quarter, topping estimates of 932,000. That was more than its top three rivals combined, a first for the No. 4 mobile carrier in the United States based on total subscribers.

No. 3 carrier Sprint Corp (Overland Park, KS, USA) is currently meeting with banks to work out funding for a bid for T-Mobile, a source familiar with the situation said, as the mobile carrier works to ease regulatory concerns that the deal would hurt competition.

U.S. authorities rejected a 2011 merger between AT&T (Dallas, TX, USA) and T-Mobile on grounds that the market needs at least four major players to be competitive.

"Certainly it is turning out that the fact that the FCC had the foresight to enable us to continue to compete and not combine with other duopolists has been a good thing," said Mike Sievert, chief marketing officer at T-Mobile.

"Consolidation if done right and if it allows T-Mobile a super charged ability to be a disruptive competitor, improving the wireless industry for consumers, we would be interested," he said.

The company will rely on free cash flow and debt to finance the upcoming spectrum auctions and does not plan on diluting shares, he said.

T-Mobile, two-thirds owned by Deutsche Telekom AG (Bonn, Germany), started to turn the corner last year after losing customers for four years, through aggressive marketing and heavy advertising for its wireless plans that have enabled it to grab market share.

The company launched a series of promotions this year, including eliminating contracts and introducing a billing plan for equipment that allows customers to pay for devices in installments. Analysts said the installment plans could pose a liability for the company if the economy turns sour as some customers may not be able to complete payments.

"The 'uncarrier' strategy is working from a subscriber perspective and the market is responding to that," said Michael McCormack, an analyst at Jefferies.

Still, the mobile service provider lost $151 million, or 19 cents per share, in the quarter, compared with a profit of $107 million, or 20 cents per share, a year earlier.

Revenue rose 47 percent to $6.88 billion, compared with $4.68 billion in the year-ago quarter.

Analysts, on average, expected a loss of 19 cents per share on revenue of $6.92 billion, according to Thomson Reuters.

It said earnings before interest, taxes, depreciation and amortization, or cash flow, fell 12.2 percent from the previous quarter to $1.1 billion due to additional costs from the sudden rise in subscribers.

But the company's chief financial officer said T-Mobile is attracting higher quality customers that are migrating from other carriers and have a better credit profile.

"The significant improvement towards prime customers helps inoculate us for any downturns that could happen in the future," Chief Financial Officer Braxton Carter said.

In the quarter T-Mobile added 1.3 million postpaid customers — those who pay monthly bills — and 465,000 prepaid customers, who pay for calls in advance.

Churn for postpaid service was 1.5 percent, down 20 basis points from the fourth quarter and off 40 basis points from a year ago.

T-Mobile stock rose $2.14 to $31.43.

(Additional reporting by Supantha Mukherjee and Soham Chatterjee; Editing by Joyjeet Das, Jeffrey Benkoe and Andrew Hay)

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