T-Mobile (TMUS, Financial) released its fourth quarter and full year 2015 earnings on Wednesday, outpacing its rivals by making strong customer addition and surpassing Wall Street estimates on both top and bottom lines. While Verizon (VZ, Financial), AT&T (T, Financial) and Sprint (S, Financial) were struggling to retain and add new subscribers, T-Mobile recorded addition of 2.1 million customers. The “Un-carrier” enjoyed solid growth in profit, thanks to its “Binge On” video streaming service that lured customers. Here’s a brief look at the T-Mobile’s operational and financial performance in the quarter that went by.
By the numbers
T-Mobile generated strong financial metrics and delivered a “balance growth with profits,” in the words of company president and CEO John Legere. The carrier witnessed double digit growth of 11.7% in service. The telecom player’s EBITDA growth stood quite impressive at 30.2%.
T-Mobile’s saw its quarterly net income rise to a staggering $297 million, or 34 cents a share, compared with $101 million, or 12 cents a share recorded in the same period last year. This was way above average analyst earnings estimate of 15 cents a share. The growth was supported by the Christmas holiday, a time when several customers go for upgrading their smartphones. The Bellevue, Washington-based company registered revenue growth of 1.1% to $8.25 billion, comfortably ahead of average analyst estimate of $8.20 billion.
The wireless provider’s average revenue per postpaid user (ARPU) marginally dropped to $48.05 during the fourth quarter compared with $48.26 a year ago. Analysts had expected the metric to come in around $46.97, according to research firm FactSet. Walter Piecyk, an analyst of BTIG Research said, "T-Mobile was the only operator to not disappoint on ARPU, the monthly phone payments of its customers."
Rising above competition
T-Mobile has been attracting customers from rival networks and ripping off their market share. The carrier took an aggressive approach, offering large discounts, incentives, and providing attractive data plans to address to customer pain points. This helped the company not only win customers from Verizon, AT&T and Sprint, but retain them too. "We aren't just winning customers, we're keeping them too," said Legere at the company’s fourth quarter earnings call. He further added, "Contrary to the belief that most of the donation (of subscribers) in the industry is coming from Sprint, it's actually coming from AT&T."
Last year in November, T-Mobile introduced a video streaming service that allows subscribers to stream videos from Netflix (NFLX, Financial), Hulu, and HBO Go. What's more, customers can also “roll over” the unused data. Apart from this, the third largest national carrier also launched cheap phone leasing plans to capitalize on the festive season.
The telecom company proposes to invest as much as $10 billion to purchase low frequency airwaves in the auction to be conducted by the U.S. government starting March 29. The company will compete with Verizon and AT&T to acquire the airwaves. The Federal Communications Commission is purchasing these airwaves from the television broadcasters and selling them to the telecom players in the auction. Analyst Michael Rollins of Citi said: “With its funding position off to a strong start ahead of the auction, we expect T-Mobile to aggressively pursue subscriber share, while improving its profitability with scale and synergy.”
T-Mobile is extremely keen to grab the auctioned spectrum. The company’s LTE network is fast in some cities and is able to transport data at high speed, but it needs more airwaves in the low-band. Lack of frequency in this range has resulted in inconsistent service to customers in certain areas, particularly in buildings and cities like San Francisco. Chief Technology Officer Neville Ray said the company is already working on refining its coverage.
Strong subscriber growth
T-Mobile managed 2.1 million total net additions during the fourth quarter, which marked the 11th straight quarter when the company added more than a million subscribers. It also needs to be noted that in six out of the last eight quarters, the company has added more than two million subscribers. Around 1.3 million subscribers added during the quarter were post-paid customers. The company attracted 917,000 branded postpaid phone customers. These subscribers are a regular source of revenue for the company as they are billed on monthly basis.
T-Mobile added 469,000 new customers in the prepaid segment in contrast to Verizon, which recorded a loss of 157,000 prepaid subscribers.
Last word
Legere said, “We set out to change this industry, we’re well on our way and we won’t stop.” The key focus now is to see how aggressively T-Mobile participates in the airwaves auction. The fourth quarter was a great success for the company, which was evident in the numbers. The company’s customer growth and EBITDA margin were the highlight of the quarter. The company’s strategy appears to be in place, is yielding results, and enabling it to invest in areas that will bolster its future outlook.
