Contract change trips-up T-Mobile USA’s Q2 growth

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BELLEVUE, Wash.—In a quarter where the carrier transitioned from one-year to two-year service contracts, T-Mobile USA Inc.’s second quarter net customer additions were down and its churn was up. Service revenues were up 18 percent year-over-year, but the carrier’s net income was down by nearly 40 percent.

T-Mobile USA’s customer additions fell 37 percent during the second quarter from 972,000 subscribers in 2005 to 613,000 customers this year. Company executives blamed the drop on the switch to two-year contracts, which matches the industry standard, and said it was only temporary.

“While this change resulted in lower net add growth in April during the transition, by June we finished with one of our best months of top-line sales since the holidays,” said Robert Dotson, T-Mobile USA’s president and chief executive officer, in a company statement.

The switch to two-year contracts is aimed at eventually cutting T-Mobile’s churn rate. Last quarter, the carrier’s overall churn was 2.9 percent, a tick up from the 2.8 percent that it reported for the second quarter of 2005 and also an increase from its overall churn rate of 2.7 percent in the first quarter of 2006. T-Mobile USA’s postpaid churn was at 2.2 percent during the second quarter of this year, down from 2.3 percent in a year-over-year comparison but up slightly from the 2.1 percent postpaid churn in this year’s first quarter.

T-Mobile USA ended the quarter with about 23 million customers, about 19.6 million of which were postpaid customers. Of the 613,000 net new customers, about 507,000 customers signed up for postpaid plans and 106,000 customers were without a contract.

The nation’s fourth-largest carrier noted that its cost to acquire a customer had increased about 4 percent year-over-year to $322, due to higher advertising costs, fewer gross additions because of the contract-length changes and a larger percentage of postpaid adds.

The company’s overall average revenue per user fell from $54 in the year-ago period to $52 in the second quarter of 2006; postpaid ARPU was unchanged at $55.

The stock of T-Mobile USA’s parent company, Deutsche Telekom AG, was down about 7 percent in midday trading on Wall Street after the news.

Meanwhile, T-Mobile USA is aggressively participating in the ongoing auction of advanced wireless services spectrum, attempting to gain badly-needed spectrum that could enable the carrier to launch a 3G network.

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