T-Mobile's Strong Q4 Growth Came at the Price of $20 Million Loss

By Michelle Maisto  |  Posted 2014-02-25

T-Mobile's Strong Q4 Growth Came at the Price of $20 Million Loss

T-Mobile's "Un-carrier" strategy is working, the carrier said Feb. 25, announcing the results of its 2013 fourth-quarter and full-year overview. During the quarter, T-Mobile added more than 1.5 million customers, 869,000 of whom are "branded postpaid" customers. For the full year 2013, T-Mobile added 4.4 million customers. 

Comparatively, during full-year 2012, T-Mobile added 1 million customers, and during the fourth quarter of 2011 alone, it lost 706,000 customers.

"We're now the fastest-growing wireless company," said CEO John Legere, more subdued than usual, during an earnings call that took place at 6 a.m. Bellevue, Wash., time.

But T-Mobile's growth under Legere is coming at a cost. While revenue increased 39 percent year-over-year to $6.8 billion, the carrier posted a loss of $20 million, widening the loss from $8 million a year ago.

"We delivered significant growth in a fiscally responsible way," said Legere. "We showed we have strong cost discipline across the whole business."

T-Mobile has provoked the industry into action with its Un-carrier deals, which it began offering in March, when it announced that it was separating devices from service plans, dropping two-year service contracts and offering interest-free, monthly device financing.

Most recently, it began offering to pay as much as $650 a line, covering the early termination fees of anyone who wanted to "break up" with AT&T, Verizon or Sprint and get together with T-Mobile.

Between the third and fourth quarters of 2013, T-Mobile's cost per gross addition (CPGA) for each "branded" customer (versus those who join the network through T-Mobile-backed MVNO, or mobile virtual network operator, brands) increased by $10, to $317.

T-Mobile executives insisted that the price is worth it, particularly since the customers that are leaving AT&T for T-Mobile are "prime" customers, with great credit histories.

"The quality of these customers is terrific," said Chief Marketing Officer Mike Siefert. "There's a cost to bring to them in … We expect the payment for each of them to be $200, maybe less over time … but that's offset [by the quality of the customers]."

T-Mobile also announced that, in a matter of fiscal quarters, it has grown its Long Term Evolution (LTE) network from "literally zero to 209 million people covered in 273 cities," said Legere. It has also made progress in shifting customers from the MetroPCS network (the carriers completed their merger May 1) to the T-Mobile network.

T-Mobile's Strong Q4 Growth Came at the Price of $20 Million Loss

A goal has been to transition customers off MetroPCS's Code Division Multiple Access (CDMA) network and on to T-Mobile's GSM or LTE networks, and then "re-farm" the MetroPCS spectrum for LTE deployments. About 40 percent of MetroPCS customers have made the switch, and T-Mobile plans to decommission the MetroPCS network in Boston, Las Vegas and Philadelphia by year's end.

The combination of Un-carrier moves, LTE growth and MetroPCS plans will help T-Mobile improve its financial situation, Eric Costa, an analyst with Technology Business Research, said in a Feb. 25 research note.

"T-Mobile remains a distant fourth among Tier 1 operators, in terms of revenue and subscribers, yet these strategies will allow the company to gain market share on Sprint over the next two years," wrote Costa.

He added that the "pricing war" T-Mobile started during the second half of 2013 will continue through 2014, and that T-Mobile's "aggressive stance" will help it "maintain its second-place position in terms of postpaid net additions in 2014."

Among the tier-one carriers, only Verizon added more postpaid customers (1.6 million) during the quarter.

Legere, during the earnings call, insisted that what was taking place wasn't a pricing war.

Legere said the industry is full of "normal, healthy competition." He added, "I don't think any players in the industry have used the term pricing war. … All of the players are just trying to protect their bases. … The changes taking place in the industry have been as much about the structure of how we're serving customers as it is about pricing. … I don't think it's a pricing war, and I don't think it will be."

As for the rumors that Sprint and T-Mobile are tiptoeing around the idea of a merger, Legere said he didn't want to comment on specifics.

"But it isn't hard to understand why we have a position that we've espoused over time, that this industry is ripe for further consolidation," said Legere.

Sprint CEO Dan Hesse, during Sprint's fourth-quarter 2013 earnings call Feb. 11, fielded a similar question with a similar answer.

Hesse told analysts on the call, "I've said consistently that further consolidation—outside of Verizon and AT&T—would be healthy for the competitive dynamic of the country … and I still believe that's very much the case."

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