Wireless network operator T-Mobile US (NASDAQ:TMUS) reported second-quarter results on Wednesday night. The self-described Un-carrier added 1.6 million subscriber accounts during this period. Combined with lower tax rates, that customer acquisition surge drove T-Mobile's earnings 37% above their year-ago levels.

T-Mobile's second quarter by the numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$10.7 billion

$10.2 billion

4.9%

Net income

$782 million

$581 million

35%

Adjusted earnings per diluted share

$0.92

$0.67

37%

Data source: T-Mobile.

The company also boosted its free cash flow by 61%, landing at $774 million. Churn rates declined slightly year over year for both the prepaid and postpaid service plan categories.

T-Mobile also added 1.6 million net new customers during the second quarter, up from 1.4 million in the first quarter and 1.3 million in the year-ago period. All told, the customer counts have increased by 8.7% over the last year, stopping at 75.6 million at the end of June.

As you might have guessed, based upon subscriber counts rising faster than revenue, T-Mobile saw its average revenue per user (ARPU) continue its long, slow decline. In the second quarter, monthly ARPU for postpaid phones fell 1.1% lower to $46.52.

What's next for T-Mobile?

It's not all about mobile phone connections anymore. Among T-Mobile's 1 million postpaid net additions, 686,000 plans were tied to phones and the remaining 331,000 were paired with other devices. T-Mobile singled out the Apple Watch as a strong driver of non-phone customer additions.

Looking ahead, T-Mobile plans to roll out 5G coverage in 30 American cities before the end of 2018. Using high-quality spectrum licenses in the 600 MHz and millimeter wave bands, this introduction of the new technology will cover major markets such as New York, Los Angeles, and Dallas. The first 5G-compatible handsets should follow in early 2019. Until then, the infrastructure upgrades will lay dormant and make no difference to T-Mobile's business results.

T-Mobile US CEO John Legere sitting at a table

T-Mobile US CEO John Legere, in full magenta regalia. Image source: T-Mobile.

The pending Sprint merger

The proposed merger between T-Mobile and Sprint (NYSE:S) is reportedly still on track for closing in the first half of 2019. In this earnings release, T-Mobile argued that neither Sprint nor T-Mobile on their own could compete with the economies of scale seen in industry giants Verizon Communications and AT&T over the long run.

Sprint also reported results this week. That company added 57,000 net new subscribers during the first quarter of its fiscal year 2018. Sprint's revenue held steady year over year while earnings fell from $0.05 to $0.04 per share, despite a much lower effective tax rate. The network now serves 54.6 million connections. In short, it's clear that Sprint needs T-Mobile more than the other way around, but both partners stand to gain from a business combination. Together, they tally 130.2 million accounts today, and T-Mobile is looking forward to using Sprint's portfolio of wireless spectrum licenses.

Both stocks rose approximately 5% higher on Thursday, tied closely together by a pure stock-swap deal structure.

Anders Bylund owns one share of T-Mobile US. The Motley Fool owns shares of and recommends AAPL. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.