T-Mobile hinted at a killer first quarter and on May 1 it delivered, announcing the addition of 2.4 million customers.
More than 1.3 million of the new customers were branded, postpaid subscribers, and 1.2 million of those were phone customers. To new and existing customers, T-Mobile sold 6.9 million smartphones during the quarter.
Not only was this T-Mobile’s first time ever adding more than 2 million customers, and its fourth consecutive quarter of adding more than 1 million customers—something that would have been unthinkable a year and a half ago—but it left its competitors in the dust.
“In true Un-carrier fashion,” T-Mobile CEO John Legere said during the morning earnings call, using the marketing term T-Mobile has created for its business outlook, “we didn’t just break one record, we shattered a slew of them,”
T-Mobile captured nearly all of the industry phone growth, as well as subscribers from each of its tier-one rivals, Legere said, adding, “Our postpaid, branded net additions outperformed our nearest competitor by a multiple of 12 times.”
Much of this growth likely came, thanks to T-Mobile’s offer to pay the early termination fees (ETFs), up to $650 per line, of anyone wanting to switch from Verizon, AT&T or Sprint to T-Mobile.
The flipside of droves of people accepting this offer was an earnings (before interest, taxes, depreciation and amortization) drop of 12.2 percent quarter-over-quarter to $1.1 billion, resulting in a loss of $151 million. According to Legere, the loss is calculated and worthwhile, as the customers who are coming over have strong credit, are buying bigger buckets of data and are staying longer.
Total revenue was $6.88 billion, increasing by 15.3 percent year-over-year (or by 47 percent, when taking MetroPCS results into account) and 0.7 percent quarter-over-quarter.
T-Mobile Still Taking on Tablets
A year ago, T-Mobile began focusing on the “the biggest problem in the industry,” which was smartphones. Now, said Chief Marketing Officer Mike Sievert, “we’re finally getting around to tablets.”
On April 10, T-Mobile introduced Operation Tablet Freedom, offering LTE-enabled tablets at what had been WiFi-enabled prices, alongside an offer of 1GB of free LTE each month through the end of the month and a “for-life” offer of 200MB of free data each month.
During the first quarter, it sold nearly 67,000 tablets, a figure substantially below its competitors’ tablet additions. (AT&T, for example, added 313,000 branded tablets during its first quarter.)
T-Mobile Added More Susbscribers in Q1 Than AT&T, Verizon Combined
“We’re kind of excited about this one, and we’re still holding back a little,” Legere said in regard to tablets, adding that T-Mobile’s approach will be very different from its competitors’.
“Our shift to tablets won’t be what you’ve seen so far,” he said. “What you’ve seen is players moving to none or little phone adds and [so focusing on tablets]. … We want to move to an environment where people are using [tablets and smartphones] interchangeably. … Watch for us to do things in this space, but not as a way to fill in a hole.”
In April, T-Mobile also launched Operation Overage Freedom, vowing to never again charge overage fees and petitioning its rivals to do the same, and introduced Simple Starter plans, its lowest-cost service offer to date.
Such Un-carrier moves are what has made all the difference for the carrier, and during the call, Sievert made clear that those offers aren’t going anywhere.
“It’s not a promotion. When we launch something with the Un-carrier label on it, that’s a commitment … We’re going to keep that ETF offer going for as long as there are significant numbers of customers still strapped in contracts.”
Legere added to that, “What we’ve seen is most of our competitors’ responses are timed, one-off responses, instead of structural changes for their customers. … A temporary ETF that’s pulled off the table is going to hurt more, in their statement to customers. Also, it says they can’t figure out the economics of leaving it on the table.”
But not everything he had to say about rivals was completely bad.
“One of the important things to note … is there’s been a real taste lately of what wireless competition looks like. Consumers are having a ball. And the big guys, as rusty as they may be, are starting to move,” Legere said, in regard to the upcoming spectrum auctions and news coming out of the Federal Communications Commission (FCC).
“The decisions that are made over the next year [around spectrum] are going to be critical to letting the U.S. industry continue this game, with its all-out wrestling,” he continued. “These are big, bold things that are happening in the industry, and we love the hand that we’re holding in this game.”
The May 1 earnings call also marked the one-year anniversary of T-Mobile’s acquisition of MetroPCS. Already, said Legere, 53 percent of MetroPCS’s subcribers have transitioned to the T-Mobile network, and more than 50 percent of the smaller carrier’s spectrum has been refarmed to grow the T-Mobile network.
The call also coincided with reports that Sprint is readying to put new energy into its pursuit of purchasing T-Mobile.
Legere, as he did during T-Mobile’s last earnings call, offered nothing specific to Sprint but said that he believes the industry is, ultimately, a “consolidation game.”
“And that’s not among just the top four,” he added, “it’s also the other players on the periphery who are looking in and want to play.”
Whether or not T-Mobile finds a new partner, Legere and his team are rubbing their hands and looking ahead.
“[The industry is] approaching a tipping point, and that’s when this gets really interesting,” said Legere. “The current Un-carrier [initiatives] are going to pale in comparison to what’s ahead.”