How T-Mobile outperformed rivals in service revenue?

T-Mobile Czech Republic
Steve Vachon, research analyst at TBR, said T-Mobile performed well in Q2 2016, driven by the success of its Un-carrier movement.

T-Mobile reported its lowest postpaid phone subscriber churn in its history in Q2 2016 despite facing intensified competitive pressure from Sprint. T-Mobile’s Un-carrier initiatives are helping to cement the operator’s subscriber base, despite customers having the option to enroll in less expensive service plans through Sprint or prepaid competitors such as Cricket.

The trend highlights that T-Mobile is less adamant about being the pricing leader in the wireless industry, but is instead emphasizing the exclusivity and overall value proposition of its service offerings to grow its subscriber base. T-Mobile’s strategy is helping to better preserve ARPU and improve margins while also contributing to the operator outperforming competitors in postpaid phone net additions the ten past consecutive quarters.

What T-Mobile achieved in Q2

T-Mobile added 1.9 million users
T-Mobile added 890,000 postpaid users
T-Mobile service revenue at $6.9 billion (+12.1 percent)
T-Mobile revenue at $9.2 billion (+12.8 percent)
T-Mobile net income at $225 million ($361 million)
311 million POPs covered with 4G LTE
Investment at $1.3 billion
Plans $4.5 to $4.8 billion Capex in 2016

Binge On, which offers data free access to video streaming services, has become the centerpiece of T-Mobile postpaid portfolio and is now available to over 100 participants including YouTube and Netflix. BingeOn will be paramount for T-Mobile in securing its subscriber base amidst the launch of DirecTV Now later in 2016 as AT&T will most likely offer unlimited wireless data plans and other bundles to support the platform. In July T-Mobile introduced its new customer loyalty program, #GetThanked, which TBR believes will help retain existing customers but will not move the needle in attracting new subscribers compared to more innovative Un-carrier offerings such as Binge On. The launch of #GetThanked also indicates that T-Mobile may be running out of wireless pain points it can help resolve.

T-Mobile remains the U.S. leader in wireless revenue growth

T-Mobile’s revenue increased 12.8 percent and remains the only U.S. Tier 1 carrier able to increase service revenue. T-Mobile is able to outperform competitors in service revenue growth because the bulk of postpaid additions (73 percent in Q2 2016) are from phone additions whereas the bulk of Verizon’s and AT&T’s new postpaid subscribers are coming from lower-value tablets. T-Mobile’s service revenue is also increasing due to its higher prepaid ARPU, which stems from MetroPCS steering customers to higher-tier data plans.

A concern for T-Mobile is its potential to sustain long-term revenue growth as the company offers a limited portfolio of services outside its core consumer mobility segment. Whereas AT&T and Verizon have new business segments they can rely on such as digital advertising and media to grow revenue in light of the saturating U.S. wireless phone market, T-Mobile’s options are currently limited.

Though lagging significantly behind AT&T and Verizon in IoT, the carrier is beginning to carve out a niche in the segment. By continuing to operate its GSM network until 2020, T-Mobile is attracting 2G M2M customers from AT&T as the carrier will shutdown its 2G network at the end of the 2016. Conversely, T-Mobile will be able to provide IoT connectivity to a broader base through its recent partnership with Twilio and investments in 5G will position T-Mobile to power advanced M2M solutions in the long-term.