T-Mobile USA Q3 2011 earnings: income and smartphone subscribers rise, net income at $332m

T-Mobile USA Reports Third Quarter of 2011 Results

BELLEVUE, Wash., Nov 10, 2011 (BUSINESS WIRE) — –Adjusted OIBDA margin of 31% within the third quarter of 2011, up from 28% within the second quarter of 2011 and third quarter of 2010

–Service revenues of $4.67 billion within the third quarter of 2011, up 1.0% from the second one quarter of 2011 but down 0.9% from the third quarter of 2010

–Net customer additions of 126,000 with regards to Value plan and unlimited Monthly 4G prepaid growth, when compared with a net customer loss inside the second quarter of 2011 of fifty,000 and 137,000 net customer additions within the third quarter of 2010

–Contract ARPU of $53 within the third quarter of 2011, according to $53 inside the second quarter of 2011 and up from $52 within the third quarter of 2010 attributed partly to data ARPU growth

–Data ARPU of $14.00 within the third quarter of 2011, up 13% from $12.40 within the third quarter of 2010

–As of the top of the third quarter of 2011, 10.1 million customers were using 3G/4G smartphones, up 40% in comparison to 7.2 million as of the top of the third quarter of 2010

T-Mobile USA, Inc. (“T-Mobile USA”) today reported third quarter 2011 service revenues of $4.67 billion, slightly down from $4.71 billion within the third quarter of 2010, and altered OIBDA of $1.45 billion, up from $1.32 billion reported within the third quarter of 2010. Additionally, net customer additions were 126,000 within the third quarter of 2011, a 176,000 improvement from net customer losses within the second quarter of 2011 of fifty,000 and slightly down from 137,000 net customer additions within the third quarter of 2010.

“Earnings improved as we continued to target making smartphones affordable to all Americans through our unlimited Value plans, improvements to our 4G network, and an expanding portfolio of 4G devices,” said Philipp Humm, President and CEO of T-Mobile USA. “Attractive prepaid offerings helped us add customers inside the third quarter of 2011 and knowledge ARPU grew as smartphone adoption continued to extend. Discipline at the cost side contributed to year-on-year margin improvement, while postpay churn, specifically regarding the iPhone 4S launches by competitors, will stay a place of shock.”

“i’m ok with the improvement of adjusted OIBDA within the third quarter of 2011. The rise, partly due to successful cost saving initiatives, is a favorable sign up a still challenging environment,” said Rene Obermann, CEO of Deutsche Telekom.

Total Customers

– T-Mobile USA served 33.7 million customers (as defined in Note 1 to the chosen Data, below) on the end of third quarter of 2011, when compared with 33.6 million customers on the end of second quarter 2011 and 33.8 million customers on the end of third quarter 2010.

– Third quarter 2011 net customer additions of 126,000, when compared with a net customer loss within the second quarter of 2011 of fifty,000, and net customer additions of 137,000 inside the third quarter of 2010. — In the course of the second and third quarters of 2011, as portion of T-Mobile USA’s technique of providing simple, value-based customer offers, T-Mobile USA introduced new unlimited Value plans for people, families and businesses, which ended in improvement in net contract customer losses in the course of the quarter.

– The quarter-over-quarter improvement in net customer additions was driven by improvements in both contract and prepaid gross additions on account of the introduction of unlimited Value plans discussed above and growth of prepaid unlimited Monthly 4G plans. This growth may well be impacted within the fourth quarter of 2011 on account of competitor launches of the iPhone 4S.

Contract Customers

– Contract net customer losses, including connected devices (as defined in Note 1 to the chosen Data, below), were 186,000 within the third quarter of 2011, an improvement from 281,000 net contract customer losses within the second quarter of 2011. Net contract customer losses were 54,000 within the third quarter of 2010.

– Branded contract net customer losses, excluding connected devices, were 389,000 within the third quarter of 2011, an improvement of 147,000 net branded contract customer losses from 536,000 within the second quarter of 2011. Net branded contract customer losses improved 64,000 within the third quarter of 2010. — Sequentially, the development in net contract customer losses was driven primarily by higher gross additions regarding the hot unlimited Value plans.

– The year-over-year change was primarily as a result of fewer branded contract gross customer additions leading to part from the implementation of strengthened credit standards as a side of T-Mobile USA’s deal with improving the general quality of its contract customer base. Additionally, customer migrations from prepaid products end result of the strategic phase out of certain hybrid plans contributed to the year-on-year growth in net branded contract customers.

– Connected device net customer additions were 204,000 inside the third quarter of 2011 in comparison to 256,000 within the second quarter of 2011 and 271,000 within the third quarter of 2010. Connected device customers, that have significantly lower ARPUs (averaging not up to $2) than other contract customers, totaled 2.5 million at September 30, 2011.

Prepaid Customers

– Prepaid net customer additions, including MVNO customers (as defined in Note 1 to the chosen Data, below), were 312,000 within the third quarter of 2011, an improvement from 231,000 net prepaid customer additions within the second quarter of 2011, and 190,000 net prepaid customer additions within the third quarter of 2010.

– Branded prepaid net customer additions, excluding MVNO customers, were 254,000 within the third quarter of 2011, up 325,000 from second quarter 2011 branded prepaid net customer losses of 71,000, and improved by 333,000 from 79,000 net branded prepaid customer losses inside the third quarter of 2010. — The sequential and year-on-year growth in branded prepaid net customer additions was due primarily to growth in unlimited Monthly 4G prepaid plans.

– MVNO customers increased slightly within the third quarter of 2011, totaling 3.5 million as of September 30, 2011. Inside the third quarter of 2011, net MVNO customer growth was lower when compared with the second one quarter of 2011 and the third quarter of 2010 caused by higher MVNO customer churn.

Churn

– Blended churn (as defined in Note 3 to the chosen Data, below), reflecting both contract and prepaid customers, increased to a few.5% within the third quarter of 2011, up from 3.3% within the second quarter of 2011 and three.4% within the third quarter of 2010. — The sequential and year-on-year increase in blended churn was primarily driven by higher churn from MVNO customers.

– Churn from branded customers was 3.2% within the third quarter of 2011, in step with the second one quarter of 2011, and an improvement from 3.4% within the third quarter of 2010. The year-on-year decrease was primarily caused by improvement in branded prepaid churn because of unlimited Monthly 4G prepaid plans.

– Contract churn, including connected devices, was 2.4% within the third quarter of 2011, according to the second one quarter of 2011 and the third quarter of 2010. — To deal with contract churn, T-Mobile USA continued to target loyalty efforts in the course of the quarter, including re-contracting its most loyal customers.

– Prepaid churn, including MVNO, increased to 7.2% within the third quarter of 2011, from 6.6% inside the second quarter of 2011 and was in line with the third quarter of 2010. — The sequential increase in prepaid churn was driven primarily by higher MVNO deactivations.

Adjusted OIBDA and Net Income

– T-Mobile USA reported Adjusted OIBDA (as defined in Note 8 to the chosen Data, below) of $1.45 billion within the third quarter of 2011, in comparison with $1.28 billion within the second quarter of 2011 and $1.32 billion within the third quarter of 2010. — Adjusted OIBDA within the third quarter of 2011 and the second one quarter of 2011 excludes AT&T transaction-related costs of $51 million and $13 million, respectively, primarily such as employee-related expenses.

– Sequentially and year-on-year, adjusted OIBDA increases were as a result of lower losses regarding equipment subsidies due to the launch of the unlimited Value plans, as described below. Third quarter 2011 operating expenses, excluding the price of equipment sales, remained fairly consistent sequentially and year-on-year as cost savings programs in 2011 has been effective in controlling expense growth. Additionally, in the course of the third quarter of 2011, adjusted OIBDA increased owing to a settlement relating to the discontinued retail partnership with RadioShack.

– T-Mobile USA’s new unlimited Value plans, allow customers to enroll in wireless services without the acquisition of or upfront payment for a bundled handset, leading to reduced costs per gross addition and subscriber retention costs, benefitting adjusted OIBDA and net income inside the quarter. Qualifying customers may separately purchase handsets at any time, either deferring payments over 21-month installment contracts or paying the total price at point-of-sale. When compared with traditional bundled price plans, the brand new unlimited Value plans end in lower service revenues being recognized over the service contract period, while recognizing higher equipment revenues on the time of the sale.

– Adjusted OIBDA margin (as defined in Note 9 to the chosen Data, below) was 31% inside the third quarter of 2011, up from 28% in both the second one quarter of 2011 and the third quarter of 2010. — Sequentially and year-on-year OIBDA margin improved primarily as a result of reductions in costs per gross addition in reference to the recent unlimited Value plans, as described above.

– Net income inside the third quarter of 2011 was $332 million, up 57% in comparison to $212 million within the second quarter of 2011 and up 4% from the $320 million reported within the third quarter of 2010. — Sequentially and year-on-year, the changes in net income were driven by the criteria impacting adjusted OIBDA, as described above. Expenses associated with the AT&T transaction, primarily which includes employee-related costs, totaled $51 million in the course of the third quarter of 2011 and $13 million within the second quarter of 2011. Additionally, fair value adjustments to certain of T-Mobile USA’s financial instruments impacted Other expense, net, contributing to the changes in net income.

Revenue

– Service revenues (as defined in Note 4 to the chosen Data, below) were $4.67 billion within the third quarter of 2011, up from $4.62 billion within the second quarter of 2011, but down 0.9% from $4.71 billion within the third quarter of 2010. — Service revenues inside the third quarter of 2011 increased in comparison with the second one quarter of 2011 principally end result of the growth in customer adoption of T-Mobile USA’s unlimited Monthly 4G plans. Additionally, the sequential increase in service revenues was due partially to the introduction of reconnect fees for certain delinquent customer accounts.

– Year-on-year, quarterly service revenues decreased primarily resulting from contract customer losses, which have been partially offset by the increased adoption of information plans inside the contract and prepaid customer base and from T-Mobile USA directly providing handset insurance services to its customers.

– Service and Sales revenues (as defined in Note 13 to the chosen Data, below) were $5.2 billion within the third quarter of 2011, up from $5.0 billion within the second quarter of 2011, but decreased slightly from $5.3 billion within the third quarter of 2010. — Service and Sales revenues increased from the second one quarter of 2011 largely as a result of handset pricing changes in reference to the introduction of T-Mobile USA’s new unlimited Value plans.

– In comparison to the third quarter of 2010, Service and Sales revenues decreased slightly due primarily to lower handset sales volumes, that have been partially offset by handset pricing changes in reference to the introduction of T-Mobile USA’s new unlimited Value plans.

– Total revenues, including service, equipment sales, and other revenues were $5.2 billion within the third quarter of 2011, up from $5.1 billion within the second quarter of 2011, but down from $5.4 billion inside the third quarter of 2010. — In comparison with the second one quarter of 2011 and third quarter of 2010, total revenues changed due primarily to the changes in equipment sales revenues as described above.

– Other revenues increased in comparison with the second one quarter of 2011 and the third quarter of 2010 due partially to a settlement regarding the discontinued retail partnership with RadioShack inside the third quarter of 2011.

ARPU

– Blended Average Revenue Per User (“ARPU” as defined in Note 4 to the chosen Data, below) was $46 within the third quarter of 2011, in line with all of the three preceding quarters but down from $47 within the third quarter of 2010.

– Contract ARPU, including connected devices, was $53 within the third quarter of 2011, in line with the second one quarter of 2011 and up from $52 inside the third quarter of 2010. — Year-on-year, contract ARPU increased as data revenue growth greater than offset lower voice revenue. Also contributing to the rise in contract ARPU was higher handset insurance contract revenues as a result launch of the directly-provided T-Mobile USA Personal Handset Protection insurance and warranty program within the fourth quarter of 2010.

– Prepaid ARPU, including MVNO, was $18 within the third quarter of 2011, in step with the second one quarter of 2011 but down from $19 within the third quarter of 2010. — Quarter-on-quarter, prepaid ARPU remained consistent as growth in unlimited Monthly 4G prepaid was offset by the strategic phase out of the FlexPay no-contract product.

– Year-on-year, prepaid ARPU decreased as a result of shift in customer mix clear of FlexPay no-contract customers.

– Data service revenues (as defined in Note 4 to the chosen Data, below) were $1.4 billion within the third quarter of 2011, up 12% from the third quarter of 2010. Data service revenues within the third quarter of 2011 represented 30% of blended ARPU, or $14.00 per customer, in comparison to 30% of blended ARPU, or $13.60 per customer within the second quarter of 2011, and 27% of blended ARPU, or $12.40 per customer within the third quarter of 2010. — Within the third quarter of 2011, the rise within the variety of customers using smartphones, at the side of T-Mobile USA’s continued upgrading of its 3G and 4G networks helped drive Internet access revenue growth throughout the increased customer adoption of mobile broadband data plans.

– 10.1 million customers were using smartphones enabled for the T-Mobile USA 3G/4G network (as defined in Note 12 to the chosen Data, below) akin to the T-Mobile(R) Sidekick(R) 4G, the HTC(R) Sensation(TM) 4G, and the T-Mobile(R) myTouch(TM) 4G Slide, on the end of the third quarter of 2011. This represents a net increase of 40% or 2.9 million customers using smartphones from the third quarter of 2010.

– 3G/4G smartphone customers now account for 30% of total customers, up from 29% within the second quarter of 2011 and 21% within the third quarter of 2010.

– Messaging revenue (as described in Note 5 to the chosen Data, below) continued to be a vital part of data service revenues. Messaging accounted for about 32% of total data revenues within the third quarter of 2011, in comparison with 35% inside the second quarter of 2011 and 36% inside the third quarter of 2010.

CPGA and CCPU

– The typical cost of acquiring a customer, Cost Per Gross Add (“CPGA” as defined in Note 7 to the chosen Data, below) was $260 within the third quarter of 2011, down from $320 within the second quarter of 2011 and $290 within the third quarter of 2010. — Sequentially and year-on-year, CPGA decreased within the third quarter of 2011 due primarily to lower handset subsidies by reason of T-Mobile USA’s new unlimited Value plans, which don’t bundle subsidized handsets as in traditional wireless service contracts.

– The typical cash cost of serving customers, Cash Cost Per User (“CCPU” as defined in Note 6 to the chosen Data, below), was $23 per customer monthly within the third quarter of 2011, in line with the second one quarter of 2011, but down from $24 within the third quarter of 2010.

Capital Expenditures

– Cash capital expenditures (as defined in Note 10 to the chosen Data, below) were $741 million within the third quarter of 2011, in comparison to $688 million inside the second quarter of 2011 and $643 million within the third quarter of 2010. — Sequentially and year-on-year, the rise in cash capital expenditures was as a result of the payment timing differences. Within the third quarter of 2011, incurred capital expenditures remained generally in step with the second one quarter of 2011 and the third quarter of 2010 due to the continued build-out of the HSPA+ 21 and HSPA+ 42 networks (as defined in Note 11 to the chosen Data, below).

– To further improve the price provided to customers through its 4G mobile broadband network, T-Mobile USA has continued to speculate in its HSPA+ 42 network, which reached over 170 million people as of the top of the third quarter of 2011, doubling the theoretical speed of its 4G network to 42 Mbps.

T-Mobile USA Recent Highlights

– On March 20, 2011, Deutsche Telekom AG and AT&T Inc. entered right into a definitive agreement under which AT&T will acquire T-Mobile USA from Deutsche Telekom in a cash and stock transaction worth approximately $39 billion, subject to adjustment according to the agreement. The agreement was approved by the Board of Directors of both companies, and is anticipated to produce an optimal combination of network assets to feature capacity and supply a possibility to enhance network quality within the near term for the shoppers of both companies. Specifically, the transaction is significant to deal with spectrum constraints and offers T-Mobile USA customers a transparent route to benefit from new generation LTE (Long time Evolution) services. As portion of the transaction, Deutsche Telekom will receive an equity stake in AT&T that, in keeping with the terms of the agreement, would give Deutsche Telekom an ownership interest in AT&T of roughly 8 percent and one seat at the AT&T Board of Directors. Within the third quarter of 2011, the U.S. Department of Justice (DOJ) filed a complaint within the Federal District Court of Washington, D.C. to dam the purchase. Deutsche Telekom and AT&T continue to pursue the purchase, with an ordeal date at the DOJ’s complaint set for mid-February 2012. Deutsche Telekom anticipates closing the transaction within the first 1/2 2012.

– In the course of the third quarter of 2011, T-Mobile USA introduced new unlimited Value plans. In August 2011, T-Mobile USA launched new Small Business Rate Plans, reinforcing the Company’s concentrate on support of small business to make it more cost-effective for purchasers to experience America’s Largest 4G Network. These plans include offerings of unlimited talk, text and knowledge services.

– T-Mobile USA continues to unveil innovative devices including 42 Mbps-capable smartphones which include the HTC(R) Amaze(TM) 4G and the Samsung Galaxy S(TM) II.

– On August 15, 2011, T-Mobile USA earned the top ranking within the J.D. Power and colleagues 2011 U.s. Full-Service Wireless Purchase Experience Study(SM) — Volume 2, the fifth consecutive highest ranking for T-Mobile USA in that study. On September 15, 2011, J.D. Powers and co-workers ranked T-Mobile USA second highest within the Southwest and West Regions and tied for second highest within the Northeast and Mid-Atlantic Regions of their 2011 Wireless Network Quality Performance Study(SM) — Volume 2.

– In the course of the third quarter of 2011, T-Mobile USA leveraged changes in retail distribution through new retail partnerships inquisitive about new distribution opportunities. According to this strategy, T-Mobile USA partnered with 7-Eleven Inc., Toys R Us and Family Dollar to start out offering a no-contract wireless product in these companies’ retail locations. On July 26, 2011, T-Mobile USA and RadioShack discontinued their retail partnership.

– Throughout the third quarter of 2011, T-Mobile USA announced the rollout of a brand new global design for just about 400 new and remodeled stores around the country in an ongoing commitment to supply the final customer experience to consumers.

T-Mobile USA is the U.S. wireless operation of Deutsche Telekom AG (otcqx:DTEGY). In an effort to provide comparability with the result of other US wireless carriers, all financial amounts are in US dollars and are in accordance with accounting principles generally accepted within the Us of a (“GAAP”). T-Mobile USA results are included within the consolidated result of Deutsche Telekom, but as presented there differ from the info contained herein as, among other things, Deutsche Telekom reports financial leads to Euros and in keeping with International Financial Reporting Standards (IFRS).

This press release includes non-GAAP financial measures. The non-GAAP financial measures could be considered as well as, but not in its place for, the data provided based on GAAP. Reconciliations from the non-GAAP financial measures to essentially the most directly comparable GAAP financial measures are provided below following Selected Data and the financial statements.