T-Mobile USA revenue analysis for Q1 2013

Telecom Lead America: T-Mobile’s long-term initiatives with its network modernization, new Simple Choice plans, and the integration of MetroPCS in 2H13 will help the operator recover in 2014; however, short-term growth will be limited due the competition’s time-to-market advantage over T-Mobile in terms of LTE rollouts, and the iPhone offerings, in the postpaid space.

T-Mobile remains significantly behind AT&T and Verizon in the postpaid market, and will continue to hemorrhage postpaid subscribers throughout 2013, though the iPhone and Simple Choice plans will help slow the decline. The operator will attract prepaid and cost conscious postpaid subscribers with the help of its new MetroPCS brand, which will result in increased margins and will help stabilize revenue decline by 2014.

T-Mobile’s 1Q13 results included an accelerated 9.9 percent year-to-year service revenue decline and continued postpaid subscriber losses of 199,000 that will continue to negatively impact the company in 1H13. Despite the decline, T-Mobile reported much improved subscriber metrics compared to the past quarters, including a significant improvement in postpaid subscriber losses. This bodes well for T-Mobile’s future, as it will benefit from slowly stabilizing its postpaid segment over time.

T-Mobile’s branded subscriber base reported positive net additions for the first time since Q1 2009

T-Mobile continued to lose postpaid subscribers, by far its biggest weakness, yet was able to slow the losses to 199,000 in 1Q13, from 510,000 in 1Q12. This improvement in postpaid losses allowed the operator to report positive branded net additions of 3,000 during 1Q13, ending the 16 quarter streak of negative branded net additions.

This is a good sign for T-Mobile, as it bodes well for its upcoming quarters in which it will be offering the iPhone and new no contract Simple Choice plans. TBR believes the operator will continue to lose postpaid subscribers throughout the remainder of 2013, yet the losses will decelerate as the iPhone and Simple Choice plans will help retain a larger number of subscribers. T-Mobile has already sold 500,000 iPhones since it went on sale in early April despite its unsubsidized price, though these results will not impact the operator until 2Q13.

In addition to the much awaited improvement in the postpaid segment, T-Mobile will also significantly strengthen its prepaid segment in 2Q13 with the addition of the MetroPCS brand and its 9 million prepaid subscribers. The new combined operator will rely on its value plans and device financing programs to draw in high prepaid net additions in 2H13 and challenge Sprint as a leader in the prepaid market.

The MetroPCS merger has been finalized and a new prepaid giant has emerged

The merger between the two prepaid operators closed on May 1st. The result is a new prepaid giant that will offer inexpensive value plans over an LTE network. The new merged operator will operate an “un-carrier” strategy which will target customers with plans and services that differ from the competition’s typical offerings. The subscriber base will consist of 15 million prepaid customers split between the two brands. T-Mobile will continue to aggressively market its GoSmart prepaid offerings and attempt to transition MetroPCS’ subscriber base onto its own HSPA+ and LTE networks to gain operational efficiencies.

The timeframe around capitalizing on these synergies is two and a half years. At that time, T-Mobile will have completed the transition of MetroPCS’ CDMA subscriber base over to its own networks, and will be able to repurpose that spectrum for future LTE coverage.

In addition to an increased subscriber base, the merger will result in an increase in prepaid revenue beginning in 2Q13. Despite the initial increase in revenue, TBR believes prepaid ARPU will slightly decline over the next few years as the operator focuses on promotions and discounts to attract new subscribers.

Eric Costa, Analyst in TBR’s Networking and Mobility Practice, Technology Business Research
[email protected]