T-Mobile Subscriber Growth Tops Estimates as Forecast Raised

Jul 31, 2014 11:35 am ET

(Updates with CEO’s comments from fifth paragraph.)

July 31 (Bloomberg) -- T-Mobile US Inc. added more customers than analysts estimated and raised its forecast for subscriber growth as the carrier continues to challenge rivals with cheaper plans and promotions.

The company added 908,000 monthly branded customers, which exceeded the 717,000 estimated in a Bloomberg survey of eight analysts. The company now projects it will add as many as 3.5 million postpaid subscribers this year, according to a statement today.

John Legere, chief executive officer of T-Mobile, is winning over customers with price cuts and phone financing offers, forcing larger rivals AT&T Inc. and Verizon Communications Inc. to follow suit. The continued subscriber growth may heighten T-Mobile’s appeal to SoftBank Corp. Masayoshi Son, SoftBank’s CEO, wants U.S. regulators to allow Sprint Corp. and T-Mobile to combine to create a stronger No. 3 wireless competitor.

“The better T-Mobile does, the more valuable they look to an acquirer, but at the same time they look even more valuable to regulators as a standalone business,” Roger Entner, an analyst with Recon Analytics LLC, in Dedham, Massachusetts, said in an interview before the results were announced.

In an interview on Bloomberg Television today, Legere declined to comment on any specific deals and said there is more than option available to help T-Mobile better compete.

‘Real Competition’

“We have two players that are significantly bigger than the others,” Legere said in the TV interview with Emily Chang. “Little by little we are attacking them, but there are multiple things to consider.

‘‘If I really want to bring long-term competition and lead this entire industry, capital is important,’’ he said. ‘‘One of the accelerants could be a transaction.’’

T-Mobile, the fourth-largest U.S. wireless carrier, now expects it will add 3 million to 3.5 million postpaid subscribers this year, up from a range of 2.8 million to 3.3 million in its previous forecast. The Bellevue, Washington-based carrier is majority owned by Deutsche Telekom AG.

T-Mobile ended its streak of four straight quarterly losses thanks to a $731 million gain from swapping spectrum with Verizon. The company reported second-quarter net income of $391 million, or 48 cents a share, compared with a loss a year ago. Without the spectrum swap, T-Mobile would have posted a net loss.

Industry Shakeup

Shares of T-Mobile rose 1.1 percent to $31.29 at 11:27 a.m. New York time. The stock had fallen 8 percent this year before today.

Earnings before interest, taxes, depreciation and amortization -- adjusted for some items including the spectrum swap -- rose to 26 percent of sales, up from 20 percent in the previous quarter. The company maintained its full-year projections for adjusted Ebitda and for capital spending.

Legere is delivering on a promise to shake up the U.S. wireless industry. The carrier introduced cheap international rates and $650 rebates to people who switch service. This week, for a limited time, T-Mobile is offering a four-person, 10- gigabyte shared family plan for $100, which is $60 below the competing offers by AT&T and Verizon.

The promotions to draw more customers come at a cost for T- Mobile. The average postpaid phone bill fell 2.3 percent from the preceding quarter to $49.32 as more customers snapped up cheaper plans and regulatory surcharges were reduced. Analysts estimated an average customer bill of $51.20.

Pricing Pressure

‘‘Rising competition is going to pressure pricing across the industry,’’ Jonathan Chaplin, an analyst at New Street Research, said in an interview. T-Mobile’s ‘‘low prices are driving the growth we’re seeing.”

AT&T added about 1 million subscribers during the quarter and Verizon gained 1.4 million. T-Mobile’s 908,000 additions included 579,000 phone customers, and the rest were mostly tablet users.

Under pressure to staunch customer losses, particularly families seeking cheaper shared plans, Sprint CEO Dan Hesse said yesterday that the company is running trials on lower-priced plans that would start in time for the holidays.

--With assistance from Caitlin McCabe and Jing Cao in New York.