T-Mobile adds 1.3 million customers

05/01/2014 12:21 PM

05/01/2014 9:18 PM

T-Mobile US added more subscribers in the first quarter than AT&T and Verizon combined, heightening the carrier’s allure as Sprint pursues a merger.

Promotions and cheaper plans helped T-Mobile add 1.3 million monthly subscribers in the period, topping the 998,000 projected by analysts and the 1.16 million customers AT&T and Verizon added combined.

Overland Park-based Sprint plans to push forward with a bid for T-Mobile after meeting with banks to make debt arrangements for that offer, Bloomberg News reported, citing people with knowledge of the situation. Executives at Sprint have made Sprint’s interest in T-Mobile clear but have declined to comment on reports on possible financing for such a deal.

T-Mobile chief executive officer John Legere is delivering on a promise to shake up the U.S. wireless industry. The fourth-largest U.S. carrier has been on a campaign to lure customers away from larger rivals by providing financing for phones, cheap international rates and as much as $650 to people who switch service.

“Right now, it is all about net subscriber growth,” said Colby Synesael, an analyst with Cowen Group. “The big debate is about sustainability and how long they will be able to keep it up.”

T-Mobile now expects to add 2.8 million to 3.3 million branded contract customers by the end of the year, the Bellevue, Washington, company said Thursday. In February, T-Mobile had raised its new customer forecast to between 2 million and 3 million.

“A year ago I promised that we would bring change to what I called this arrogant U.S. wireless industry,” Legere said in a statement. “We are delivering on that promise and our results reflect the growing customer revolution that we’ve ignited.”

Masayoshi Son, CEO of SoftBank, which owns about 80 percent of Sprint, is expected to make a formal bid for T-Mobile in June or July, one of the people said. And T-Mobile’s Legere is the leading candidate to run the combined company, one of the people said.

Sprint, led by CEO Dan Hesse, had a net loss of monthly subscribers in the first quarter.

T-Mobile’s aggressive marketing is forcing the industry to mimic its plans and start moving away from reliance on discounted phones and long-term contracts. Still, its subscriber gains, driven by cheaper service plans, are coming at the price of higher costs that are taking a hit on profits.

Adjusted earnings before interest, taxes, depreciation and amortization will be $5.6 billion to $5.8 billion for the full year, the company said. T-Mobile had previously forecast as much as $6 billion.

The company reported adjusted EBITDA of $1.09 billion for the first quarter, down 26 percent from $1.47 billion a year earlier, including earnings from MetroPCS before the companies merged last year.

Net income swung to a loss of $151 million, or 19 cents a share, from a profit of $107 million, or 20 cents a share, a year earlier.

The high costs of acquiring so many new customers also narrowed margins and reduced the average revenue collected from each customer. T-Mobile posted a wireless margin of 20 percent, down from 29 percent a year ago. The average estimate was for 22.43 percent, based on a Bloomberg survey of eight analysts.

“T-Mobile’s low margin is a clear advantage that allows them to compete effectively for market share,” Synesael said in an interview on Wednesday.

Consumers continued to benefit as the average T-Mobile phone bill for contract customers fell to $50.01 from $54.07 last year. Analysts expected $50.05, according to a Bloomberg survey.

T-Mobile’s performance easily topped AT&T, which gained 625,000 monthly subscribers, almost three times the amount analysts were expecting.

Verizon has tried to stay out of the price cutting battle by relying heavily on network quality to keep customers in the fold. The company lost 138,000 monthly phone customers in the first quarter, a deficit more than offset by new tablet users, giving Verizon a total net gain of 539,000 contract customers.

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