CtW Investment Group filed a complaint with the SEC asking for an investigation into T-Mobile and parent company DT accounting practices.
An investment group claiming to represent union pension funds said T-Mobile US is misleading investors by not providing “adequate information and necessary context in its financial statements.”
The CtW Investment Group, which said it works with pension funds sponsored by affiliates of Change to Win that is a federation of unions representing more than 5 million members, filed a complaint with the Securities and Exchange Commission asking for an investigation into T-Mobile US’ accounting practices.
The group claims T-Mobile US insinuates a better financial picture by using metrics that do not conform to generally accepted accounting principals and that also make it difficult to judge performance against its peers like Verizon Wireless, AT&T Mobility and Sprint as well as its own historical earnings. Financial results cited include free cash flow and adjusted free cash flow that did not include the impact of $4.6 billion in spectrum acquired over the past three years, which CtW claims rivals include; and inadequate information needed to compare T-Mobile US’ own adjusted earnings before interest, taxes, depreciation and amortization and free cash flow results.
CtW also reiterated claims from earlier this year that T-Mobile US boosted earnings between the fourth quarter of 2014 and the third quarter of 2015, by reducing the amount set aside for credit losses from its equipment installment plans “while the quality of its EIP receivables was deteriorating and the risk of future credit losses was increasing.” That action is said to have raised net income by $122 million, or about 23% of net income, while following previous accounting practices would have reduced T-Mobile US’ reported net income by 11% in 2014, and 13% in 2015.
“T-Mobile’s financial reporting and accounting estimates are opaque at best and deceptive at worst,” said Dieter Waizenegger, executive director of CtW Investment Group, in a statement. “Investors simply do not have the information needed to access risks and back out real quarter-on-quarter or year-over-year growth rates. The company refuses to give investors a transparent look into its growth and financial health. The SEC has put companies on notice that they should self-correct non-GAAP abuses, and we do not believe T-Mobile’s latest earnings fixed long-standing problems, and the agency’s intervention is necessary.”
The SEC complaint also asks that T-Mobile US parent company Deutsche Telekom be investigated for not acting on the previously claimed abuses.
DT management has recently thrown its support behind its U.S. operations, noting it had no plans to sell the business despite persistent rumors to the contrary.
According to reports, DT CEO Tim Hoettges said the company was not in the “mood of selling the business.” Those comments backed ones from earlier this year when Hoettges said DT had no plans to sell T-Mobile US through at least the still ongoing 600 MHz incentive auction proceedings.
The decision comes as T-Mobile US continues to power its way through the domestic wireless market, gaining market share from its rivals and beginning to generate a return for its parent company. In addition, the recent U.S. presidential election, which saw Republican president-elect Donald Trump voted into power, could alter the business approach of government agencies. A Democrat-led administration previously prevented AT&T from acquiring T-Mobile US as well as strongly discouraged Sprint owner SoftBank from acquiring its now larger rival.
“We are now open to how we could create something beyond our execution, which is creating value,” said Hoettges at the recent Morgan Stanley TMT Conference in Barcelona, Spain, according to Reuters. “We compare a lot of variables. With Trump, the regulatory environment might change. Everybody is expecting this. At least the chance is bigger then it was under the Democrats.”
T-Mobile US posted market-leading customer growth results in Q3, which included nearly 2 million net connection additions to its network and gloated of plucking customers from rivals. The carrier’s stock has ridden the strong results and recent backing from DT to record highs, with its stock price (TMUS) last week hitting a new 52-week high of $54.93 per share.
CtW said it’s a current investor in both T-Mobile US and DT.
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