As carriers turn from subsidies to financing to sell mobile devices, T-Mobile US hopes lenders will see value in that steady stream of customer payments. CFO Braxton Carter told Bloomberg that the company may raise cash by factoring its expected payments on devices.
The success of any borrowing against future device payments will depend on how reliable those payments are. And T-Mobile US’ incoming payments may be less reliable than those of some other carriers. Three months ago, the carrier launched a plan called Smartphone Equality. Every customer who has paid his or her wireless phone bill on time for 12 straight months qualifies for the same device pricing that T-Mobile US offers to customers with good credit scores. The plan extends device financing to people with poor credit scores, but it also creates a strong incentive for T-Mobile US customers to pay on time.
Almost half of the T-Mobile US customers who have financed their phone purchases have subprime credit, according to a recent regulatory filing cited by Bloomberg. The carrier regularly sets aside reserves to cover the cost of customers who do not pay.
As of March 31, T-Mobile US had almost $3.3 billion in equipment installment plan receivables on its balance sheet. The company had $3 billion in cash, down from $5.3 billion at the end of 2014. Long-term debt for T-Mobile US is $32.3 billion, more than double its shareholders’ equity.
T-Mobile US said in its earnings report that even with its “investment in customer growth” (service plan discounts), it was able to grow operating income by 27.6% year-on-year. Wall Street analyst Craig Moffett noted last week that the way carriers account for device financing can mean the difference between positive and negative operating income. Moffett also said that T-Mobile US and Verizon Wireless are the two healthiest wireless carriers from a financial perspective.
