Postpaid defections continue to haunt T-Mobile USA’s results

T-Mobile USA Inc. said it lost 77,000 customers during the first quarter of the year pushed by continued losses from its postpaid business that were too much for a small increase in prepaid users to overcome. The losses marked the carrier with the worst customer growth results of the industry’s four nationwide operators even out losing the 75,000 customers lost by Sprint Nextel Corp.
The domestic industry’s No. 4 carrier said it lost 118,000 contract customers during the quarter, which was in line with the 117,000 it lost during the final three months of 2009, but significantly down from the 160,000 contract customers it added during the first quarter of 2009. The carrier said the drop was due to fewer subscribers to its FlexPay contract service. The carrier also failed to maintain momentum from the re-vamping of its rate plans during the fourth quarter of last year.
T-Mobile USA has typically been able to counteract the contract losses with solid gains from its prepaid service, but that failed to materialize during the first quarter as the carrier said it added only 41,000 prepaid customers during the quarter, down from the 255,000 subscribers it added during the first quarter of 2009 and the 488,000 prepaid customers it added during the final quarter of last year. T-Mobile USA cited lower net additions from its mobile virtual network operator partners for the drop, adding that it served 2.1 million MVNO customers on its network at the end of the quarter.
T-Mobile USA said it ended the quarter with 79% of its 33.7 million total customers on contract plans, which was down from the 81% posted for the first quarter of 2009, but flat sequentially.
The carrier posted blended churn results of 3.1% for the quarter, which was flat year-over-year and an improvement from the 3.3% posted for the fourth quarter of 2009. Postpaid churn improved from 2.3% during the first quarter of 2009 to 2.2% this year, further indicating that the carrier is having trouble attracting new customers to its services.
Average revenue per user results showed a downward trend year-over-year, but flat sequentially. Blended ARPU dropped from $48 during the first quarter of 2009 to $46 this year, with postpaid ARPU dipping from $52 to $51 and prepaid ARPU falling from $21 to $18. Data services continued to take an increasing share of total ARPU with blended data ARPU of $10.90 during the quarter, up from the $9.40 posted for the first quarter of 2009. T-Mobile USA added that 5.2 million customers were using converged 3G devices on its network at the end of the quarter, an increase from the 1.5 million devices on its network at the end of the first quarter of 2009.
T-Mobile USA’s cost to acquire new customers increased from $300 during the first quarter of 2009 to $310 during the recent quarter, while its cash cost per user dipped from $24 to $23 year-over-year. Capital expenditures also dropped from $1.13 billion during the first quarter of 2009 to $666 million this year, which the carrier attributed to higher costs associated with its aggressive 3G build out during the first half of last year.
The slower growth and falling ARPU impacted the carrier’s total revenues, which dropped from $5.4 billion during the first quarter of 2009 to $5.3 billion this year. Thanks to capex cuts, T-Mobile USA managed to trim operational expenses from $4.7 billion during the first quarter of 2009 to $4.5 billion this year, which helped the carrier squeak out a slight increase in net income from $322 million last year to $362 million this year.
“T-Mobile USA achieved a slightly higher margin and strong data ARPU, despite a challenging and highly competitive business environment,” said Ren