T-Mobile's Huge Customer Gains Come With a Loss

The first quarter of 2014 was a monumental one for T-Mobile (NYSE: TMUS  ) with the company posting a record net customer gain of 2.4 million -- the first time it surpassed the 2 million net customer gain in a quarter. But T-Mobile's customer gains have come at a cost.

Two steps forward, two steps back
T-Mobile has bounced back from a branded post-paid customer net loss of 199,000 in Q1 2013 to a gain of 1.3 million this quarter. That's a huge turnaround that's come from the company pursing its Un-carrier initiatives including paying early termination fees of customers who switch to T-Mobile from a competing carrier. The company's also eliminated service contracts, changed to simpler pricing plans, and given away free tablet data for life.

In addition to net customer gains, T-Mobile also saw revenue increase 47% year over year, to $6.9 billion. That huge jump partially came from including Metro PCS prepaid customers. But even if we take out the Metro PCS customers, revenue was up 19% year over year.

But while the nation's No. 4 wireless carrier's massive Un-carrier efforts have paid off in gaining customers and new revenue, it's also partially contributed to the company's net income loss of $151 million for the quarter, or about $0.19 per share, down from a gain of $107 million year over year.

Net income wasn't the only drop though, as the average revenue per user also fell to $50.01, down 8% year over year. The decline has been a bit of a thorn in T-Mobile's side, considering it's dropped every quarter for the last year. The drop is somewhat expected as T-Mobile changed its pricing plans and eliminated certain fees that previously attributed to ARPU, but it's still unwanted.

Fighting an uphill battle
Most of T-Mobile's efforts to gain customers has been in presenting itself as an advocate of wireless customers while attacking competitors head-on. AT&T (NYSE: T  ) has taken the brunt of T-Mobile's rhetoric against carriers, but has managed to outpace the carrier's efforts.

Just last week AT&T posted 625,000 net postpaid subscribers in the first quarter of 2014, contributing the company's best first-quarter net adds in five years. That increase has come as AT&T's changed its monthly pricing strategy, dropped much of its phone subsidy plans and has offered its own incentives to switch from T-Mobile to its carrier.

Foolish thoughts
There's no doubt T-Mobile's efforts are paying off in adding net subscribers, but the company's long-term prospects partially depend on stabilizing average revenue per user. T-Mobile still has time to do this, but investors should continue to watch ARPU numbers to see if the company can level it out and then start growing it. The company's Un-carrier campaigns have pushed AT&T and others to change how they sell devices and plans to customers, but changing the industry should now take a backseat to creating long-term value for investors.

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  • Report this Comment On May 01, 2014, at 12:00 PM, ss492 wrote:

    I'm so confused. Someone must own a LOT of ATT stock. You again repeated the tripe that ATT is outpacing Tmobile. What metrics are you using for this?

    First, your article on ATT came out a week before Tmo even posted results! Second, 1.3 mil is greater than 645k....I think.

    I know I'm just an idiot for caring or even clicking on the link again, but the logic seems so flawed even the Fool should be able to publish better analysis. I'm sure you can do some basic analysis on earnings or ARPU trends or something to actually support your position that ATT is doing better.

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