T-Mobile Earnings Show Rays of Hope, But iPhone 4S Remains Concern

By Josh Long

T-Mobile USA demonstrated progress in its third-quarter results as the nation’s fourth-largest mobile operator added customers and reduced the number of subscribers on contract who defected to competitors.

The Deutsche Telekom-owned carrier wooed 126,000 customers, reflecting an improvement from a loss of 50,000 customers in the prior quarter but still down from 137,000 additions in the year-ago period.

T-Mobile USA has been getting bludgeoned by the likes of AT&T and Verizon Wireless as hundreds of thousands of its customers on contracts flee to competitors each quarter. But the Bellevue, Wash.-based company bled less in the third quarter: Excluding connected devices, T-Mobile USA lost 389,000 branded customers on contract, down from 536,000 losses in the second quarter.

Still, the company remains concerned that Apple’s latest smartphone  the iPhone 4S could hurt it. AT&T, Sprint Nextel and Verizon Wireless all began selling the gadget in October.

“Attractive prepaid offerings helped us add customers in the third quarter of 2011 and data ARPU grew as smartphone adoption continued to increase,” said Philipp Humm, president and CEO of T-Mobile USA. “Discipline on the cost side contributed to year-on-year margin improvement, while postpay churn, in particular, related to the iPhone 4S launches by competitors, will continue to be an area of concern.”

T-Mobile USA noted the introduction of “Value” plans for individuals, families and businesses helped improve the number of customers it lost on contracts, but it cautioned that the quarter-over-quarter improvement in customer gains “may be impacted in the fourth quarter of 201 due to competitor launches of the iPhone 4S.”

Service revenues totaled $4.67 billion, down slightly from $4.71 billion in the third quarter of 2010. T-Mobile USA posted a profit of $332 million, up 57 percent compared to $212 million in the second quarter and a 4 percent improvement over the year-ago quarter ($320 million).

During the quarter, the company incurred $741 million in cash capital expenditures. T-Mobile USA said it has continued to invest in its HSPA+ 42 network, which reached more than 170 million individuals at the end of the quarter and is capable of “theoretical” 4G speeds of 42 Mbps.

Deutsche Telekom, T-Mobile USA’s parent, inked a $39 billion deal several months ago to sell the mobile operator to AT&T, but the merger is mired in antitrust litigation. In mid-February, the U.S. Department of Justice is scheduled to square off against AT&T in federal court in Washington, D.C. Germany-based Deutsche Telekom still anticipates closing the deal in the first half of 2012. But such an expectation is based on the assumption that AT&T will either prevail in court or reach a settlement agreement with the Justice Department.

T-Mobile USA served 33.7 million customers at the end of the quarter, versus 33.6 million at the end of the second quarter and 33.8 million at the end of the third quarter of 2010. The company said 10.1 million customers were using 3G/4G smartphones at the end of the quarter, up 40 percent from 7.2 million at the end of the third quarter of 2010.