Analyst Angle: Thoughts ahead of T-Mobile USA’s Q3 earnings release

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Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.

T-Mobile USA is set to release its third quarter earnings and performance metrics on Nov. 8 as part of its overall parent’s (Deutsche Telekom) Q3 2012 release. DT’s U.S. unit is fresh off a merger/acquisition announcement with MetroPCS in October that had grabbed much of the news around the carrier, but the Q3 earnings numbers should reveal whether T-Mobile USA would continue key trends. The company has provided five focus areas throughout previous quarters and many of its Q3 progress points will fit again in these areas.

Under “Amazing 4G Services,” we should expect to hear about network progress (LTE buildout) and new halo devices. Under the “Value Leader,” we should expect to hear about any new services or marketing initiatives. In furthering the “Trusted Brand,” T-Mobile USA has been talking about expanding their distribution. For the last two quarters, the company has been putting a lot of effort into opening new “doors,” the first fruits of this may show up in Q3. With the “Multi-Segment Player” focus, this is mostly about expanding wholesale (machine-to-machine and mobile virtual network operators) and ramping up the business-to-business efforts. Finally the “Challenger” thrust should roll up cost control and churn containment. Maybe there will be light shed on acquiring iPhone switchers. However, some performance metrics continue the bellwether of corporate direction.

Net additions: The trend doesn’t look good for the company as its postpaid base continues on a negative trajectory since Q3 2010. On the other hand, T-Mobile USA’s prepaid business is the bright spot in preventing a totally bleak story. The fact that the company has been able to post positive net prepaid additions in an ultra competitive prepaid segment is notable. Throughout the years, prepaid has been on the rise and makes up more of T-Mobile USA’s customer base. In Q2 2010, the prepaid business accounted for about 20% of the base. By Q2 2012, that percentage increased to over 27%. The third quarter looks to increase that percentage. Switching over to postpaid, the company still needs to reverse the slide. The unlimited data and plan value story should resonate and pits the company against Sprint Nextel’s own unlimited data proposition. How well the company markets to iPhone switching will be a key element in increasing its postpaid pool.

Any increase should signal somewhat to the traction of its expanded distribution strategy.

Churn: Looking at prepaid churn, the company is doing a good job in stabilizing that base. The third quarter should continue the downward direction. However, the churn number currently at 6% is very high relative to rivals. In contrast, Sprint Nextel’s multi-branded prepaid group posted 3.37% for Q3 while dedicated prepaid plays MetroPCS and Leap are in mid-3% and mid-4%, respectively. On the postpaid side, the magic threshold for Q3 should be sub 2%. Rival Sprint Nextel crossed that mark two quarters ago. T-Mobile USA remains the only national carrier to be above the 2% postpaid churn mark.

ARPU: The carrier is also behind in these metrics relative to its national rivals. The downward postpaid average revenue per user trend is in stark contrast to AT&T Mobility, Sprint Nextel and Verizon Wireless, which have been sloping positively nicely. While AT&T Mobility is the postpaid ARPU leader at over $65, Verizon Wireless is T-Mobile USA’s closest ARPU neighbor at $56 in Q2 before they moved to the new average revenue per account stat. On the prepaid side Sprint Nextel remained over the $26 mark in Q3 while regional Leap and MetroPCS are in the $40s. To move the mark in prepaid, T-Mobile USA needs to focus on the high-value users. Of course this will be moot in 2013/2014 once MetroPCS starts to get integrated.

Network: There will undoubtedly be discussion on how well the LTE buildout is progressing. T-Mobile USA while it pushes its “4G” speed (1.7/2.1 GHz-based HSPA+), it should be stating how well the 1.9 GHz re-farming is going. This re-farming is central to moving ahead with its 1.7/2.1 GHz LTE plans. The 1.9 GHz HSPA+ network also serves as the honeypot for additional unlocked GSM iPhone users. Given the jump that other national carriers have in LTE, there should be a mention or reiteration of when T-Mobile USA expects to launch LTE markets.

Bill Ho is an independent industry analyst with over 20 years in telecommunications space and over 7 years in the mobile sector. Recognized as an industry expert, he has been quoted in wireless trade publications as well as mainstream media. Ho’s coverage includes the U.S. carrier community and device players with a specific focus on competitive positioning. You can follow Ho on Twitter @billho888.

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Dan Meyer

Editor-in-Chief, Telecom Software, Policy, Wireless Carriers
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Dan Meyer started at RCR Wireless News in 1999 covering wireless carriers and wireless technologies. As editor-in-chief, Dan oversees editorial direction, reports on news from the wireless industry, including telecom software, policy and wireless carriers, and provides opinion stories on topics of concern to the market such as his popular Friday column “Worst of the Week.”

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