Prepaid undermines T-Mobile USA's Q2 results

A competitive wireless market continued to hamper T-Mobile USA Inc. (DTEGY) during the second quarter as the nation’s fourth largest wireless operator said it lost 93,000 customers during the quarter on top of the 77,000 subscribers the carrier lost during the first three months of the year.
The carrier said that while it added 106,000 postpaid customers during the quarter, which was down sequentially from the 118,000 customers it added during the first quarter, but an increase from the 56,000 subscribers it added during the second quarter of 2009, prepaid growth plummeted from a gain of 41,000 customers during the first quarter and 268,000 customers during the second quarter of 2009 to a loss of 199,000 prepaid customers during its latest quarter.
T-Mobile USA did begin running a free phone promotion during the end of the second quarter for customers that signed a contract on a family plan.
This was a bit surprising as the carrier has aggressively targeted prepaid customers with rate plans that were actually less expensive per month than its postpaid plans at the expense of handset subsidies. T-Mobile USA said the decrease was attributed to an increase in prepaid customer churn to 7.6%, which if spread out across a full year would result in more than 91% of its prepaid customer base churning from the carrier.
The spike in prepaid churn rolled over into its blended churn rate that jumped from 3.1% during the second quarter of 2009 to 3.4% this year. T-Mobile USA ended the first half of this year with just over 33.6 million customers, a slight increase from the 33.5 million it served at the end of the second quarter of 2009.
Of the nation’s four largest carriers, T-Mobile USA was the only one to post net customer losses for the quarter. Verizon Wireless (VZ) said it added 1.351 million customers during the quarter; AT&T Mobility (T) said it added 1.562 million; and Sprint Nextel Corp. (S) said it added 111,000 subscribers.
T-Mobile USA’s average revenue per user dipped slightly from $48 during the second quarter of 2009 to $47 this year, though contributions from data services increased from $9.90 to $11.60 year-over-year.
The drop in ARPU and relatively flat customer base year-over-year resulted in a dip in service revenues from $4.766 billion in 2009 to $4.699 billion this year. Increased acquisition costs and cost of equipment sales pushed net income down from $425 million in 2009 to $404 million this year.