Customer defections slow at T-Mobile USA, though future remains clouded

T-Mobile USA Inc. (DTEGY) showed marked improvements in its operations during the second quarter, posting fewer customer losses and stabilizing revenues.
The carrier, which is in the midst of a possible acquisition by AT&T Inc. (T), said it lost just 50,000 customers during the second quarter, which was nearly half the 99,000 customers lost during the previous quarter and the 93,000 customers lost during the second quarter of 2010.
The customer breakdown showed a loss of 281,000 contract customers during the quarter, which was a 26% improvement sequentially from the first quarter, but a dramatic turnaround from the 106,000 contract customers the carrier added during the second quarter of 2010.
The carrier attributed the sequential improvements to recent postpaid pricing changes and growth in its machine-to-machine operations (33% sequential improvement to 256,000 net additions), but noted the year-over-year drop was due to increased competition in the space.
The trend was reversed on the prepaid side where T-Mobile USA posted an 18% sequential drop in net additions, falling from 283,000 subscribers during the first quarter to 231,000 net customer additions in the second quarter, while year-over-year results increased from a loss of 199,000 prepaid customers during the second quarter of 2010.
Second quarter growth was impacted by a drop in gross customer additions as customer churn dropped from 3.4% during the second quarter of 2010 and the first quarter of 2011 to 3.3%. Postpaid churn was flat sequentially at 2.4%, though did tick up from the 2.2% posted last year, while prepaid churn of 6.6% was down from the 6.7% posted during the first quarter and the 7.6% posted during the second quarter of 2010.
Average revenue per user dropped by $1 year-over-year to $46 in the second quarter, which T-Mobile USA attributed to growth in its prepaid services. The carrier’s prepaid operations maintained flat ARPU of $18, while postpaid ARPU increased $1 to $53. Data services, which include messaging revenues, increased from $11.60 in monthly ARPU during the second quarter of 2010, or 25% of total ARPU, to $13.60 this year, or 30% of total ARPU.
T-Mobile USA’s year-over-year customer growth and ARPU results were evident in its revenue results as a drop in contract revenues and equipment sales offset increases in prepaid revenues to push down total revenues from $5.356 billion during the second quarter of 2010 to $5.050 billion this year.
T-Mobile USA’s cost per gross customer additions dropped $10 year-over-year to $320, which the carrier attributed to an increased mix of gross additions from mobile virtual network operator partners and M2M connections, while its cash cost per user remained flat at $23.
Capital expenditures were down year-over-year from $749 million during the second quarter of 2010 to $688 million this year, though were up slightly from the $682 million spent during the first three months of the year.
Improvements in customer cost metrics and the drop in capital expenditures were not enough to help offset the decrease in revenues, with net income dropping from $404 million during the second quarter of 2010 to $207 million this year. The results were an improvement from the first quarter of the year, in which T-Mobile USA posted net income of just $114 million.
Despite the stabilization of customer metrics, T-Mobile USA’s operations remain under a cloud of what its future might be. This was evident in comments from T-Mobile USA’s parent company Deutsche Telekom AG, which seemed to show a half-hearted approach to the subsidiary, seeming to want to remain committed to its potential sale to AT&T, while at the same time having to remain committed to the venture in case the deal falls through.
“The United States remains a difficult market for Deutsche Telekom, but we see improvements compared to the first quarter of 2011,” said DT CEO Rene Obermann.