It's been a couple weeks since T-Mobile (NASDAQ:TMUS) reported second quarter results and here are 3 key takeaways from the conference call that are important for T-Mobile followers to keep in mind.
T-Mobile has figured out how to sell cellular tablets
For the longest time, wireless carriers have had trouble figuring out how to monetize cellular tablets. Most tablets sold are Wi-Fi models, since people are wary of adding another data plan to their monthly bill. Carriers have unsuccessfully tried subsidizing them using traditional 2-year service contracts. Well, T-Mobile has figured out what it takes: give away free data and get rid of the upfront premium.
We also posted a record 329,000 mobile broadband net adds, mostly tablets, up almost 5 times from the first quarter. This reflects the success of our Operation Tablet Freedom, which we launched in April. Tablets have become a big part of our business and a big part for the wireless industry, and this quarter results show that T-Mobile can play to win in that area as well. We see it as a significant opportunity going forward, and we are just getting started.
Late last year, T-Mobile began offering 200 MB of free data for tablets, with the hopes that getting a free taste per month would convince people to pay the premium associated with adding cellular connectivity. In April, it sweetened the offer even further, adding another 1 GB to that limit for a total of 1.2 GB of free data. Oh, and T-Mobile is absorbing the extra hardware cost, selling cellular tablets for the same price as Wi-Fi models.
The catch? You have to be a postpaid voice customer to qualify, and the 1 GB of promotional data ends at the end of 2014. Still, that's a pretty compelling offer, and T-Mobile saw a fivefold sequential increase in tablet sales during the second quarter as a result of Operation Tablet Freedom.
700MHz will be a game-changer
For wireless carriers, low-frequency spectrum is extremely important. That's because low-frequency signals have superior long-distance propagation characteristics and are also more capable of penetrating through buildings. Carriers with ample low-frequency spectrum holdings are able to reduce network density, saving on capital expenditures in the process.
Larger rivals Verizon and AT&T control nearly two-thirds of low-frequency licenses, giving them a distinct advantage over Sprint and T-Mobile. In the name of competition, regulators have voted to restrict the two larger players' ability to participate in the upcoming spectrum auction next year for low-frequency airwaves. Verizon sold some 700 MHz licenses to T-Mobile during the quarter for $2.4 billion, mostly so it could secure other spectrum licenses to strengthen capacity in key markets.
And all this breadth, quality and speed, is happening before [CTO Neville Ray] and his team really start cranking on the 700 MHz A-block spectrum. That will be another game changer for us, so let me give you an update on what lies ahead. Our 700 MHz A-block spectrum covers 158 million, or about 50% of the population, and 70% of the existing T-Mobile customer base. It covers 9 of the top 10, and 21 of the top 30, metros in the US. I'm thrilled to report that the first 700 MHz sites are already on air. Compatible handsets are being field tested right now, and are expected to be available for sale by the fourth quarter.
Even though T-Mobile has dramatically improved its network performance over the past 18 months, deploying on 700 MHz will only reinvigorate this performance momentum.
Integration of MetroPCS is going great
The wireless industry is prone to consolidation due to the necessary cost structures. Some deals work out, regulators block some, and others prove to be enormous mistakes.
As far as MetroPCS is concerned, investors can consider the merger a huge success. Not only has the deal helped T-Mobile become the top prepaid carrier in the U.S., the integration is moving along swimmingly.
Now, on to an update on [MetroPCS] synergy and integration costs. With another quarter under our belts, we remain more confident than ever that the synergies projected at the end of the announcement of our transaction were conservative, and are coming in ahead of expectations. We will give you a full financial update on the synergies and targets as we report full-year results.
Well, we're moving MetroPCS 3G CDMA customers to a better, faster network, and offering them a superior experience. The conversion also frees up spectrum that we can refarm and reuse to improve the speed and quality of the T-Mobile network. And finally, it allows us to realize the synergies from running a leaner, single network structure.
Network integrations are usually the biggest challenge in wireless mergers (just ask Sprint). T-Mobile's integration of the MetroPCS network is ahead of schedule, and the company has already transitioned two-thirds of MetroPCS customers to its own network. T-Mobile continues to expect $1.5 billion in annual cash savings from the merger's synergies.
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Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.