The wireless carrier industry has undergone a significant change in the last one year. This change is mainly because of the efforts made by the industry players. T-Mobile (TMUS, Financial) has been one of the major contributors to this. Its uncarrier strategies forced other players to resort to similar plans, making the industry much more competitive.
Therefore, T-Mobile is witnessing a great turnaround in its business. This was clearly reflected in its second quarter results, reported recently. The numbers surged, as it surpassed the Street’s estimates. This led to a sharp rise in its share price. Let us dig in deeper.
The “uncarrier” strategy
Revenue surged 8% over last year, clocking in at $7.2 billion. The top line was driven by large additions to the customer base, higher equipment and service revenue. T-Mobile added 1.5 million subscribers during the quarter. Hence, the subscriber base stood at 50.5 million, out of which 24.5 million of them were post paid subscribers. Equipment revenue jumped 16% to $1.6 billion and service revenue rose 7% to $5.5 billion.
The wireless company sold 6.2 million smartphones during the quarter. In fact, smartphones now make 93% of the total phone sales, as its penetration increased to 84% of total branded customers. Further, tablet sales have also been on a rise, multiplying it 5 times, over the previous quarter.
T-Mobile has been able to register growth through its uncarrier strategy. It made people shift away from long-term contracts, reduced price and introduced Simple Choice Plan. Also, the company offers free international roaming, early upgrades and pays early termination fees for customers who switch to T-Mobile. Its offer of unlimited music streaming, without any data limits, got very popular among customers.
On the flip side
However, the churn rate has been a problem for the wireless carrier. It is as high as 1.5%. But T-Mobile managed to stop it from growing as the churn rate was flat, over the prior year. With the new strategy and a growing customer base, the company should be able to reduce its churn rate.
Another problem with the company was a decline in ARPU from $54.04 to $49.32. This decrease is mainly because of reduction in prices and simple choice plan offered by the wireless carrier. However, growing customer base has been able to offset this decline. Lower price has been a primary driver in adding more customers. This has ultimately resulted in the top line growth. Therefore, the drop in ARPU is not a major problem but a part of its uncarrier strategy.
One of the greatest moves of T-Mobile was the acquisition of MetroPCS last year. This added a total of 9 million customers to its existing 34 million customer base. Further, it helped T-Mobile to cater to two different demographics through two carriers. This is because MetroPCS caters to a different section of people, who are in the low income group and queue up every month to pay their monthly bills in cash. Nonetheless, this acquisition has been quite advantageous for the company.
The bottom line
Although T-Mobile is on the fourth position, its well made strategies look enticing. Its efforts of growing through acquisition and offering reduced prices have played an important role in its growth. If it continues to grow this way, it is expected to outpace Sprint by the end of this year. With a growing customer base and higher revenue, this company seems to have a bright future. Investors should take notice.
