T-Mobile's new customers beat growth estimates
T-Mobile US Inc. added more customers than analysts estimated and boosted its subscriber forecast for the year, as it continues to challenge rivals with cheaper plans that are putting a dent in industry profits.
The fourth-largest U.S. wireless carrier added 1.4 million customers through its own brands, exceeding the 1.14 million average projection in a Bloomberg survey of 10 analysts. The competition to be the lowest-priced carrier is taking a toll on the bottom line. T-Mobile reported a third-quarter net loss of 12 cents a share, compared with a loss of 5 cents a year ago.
Chief Executive Officer John Legere has positioned the company as the "un-carrier" by cutting data-plan prices, financing phones and offering new customers rewards of as much as $650 for switching service providers. Larger rivals AT&T Inc., Verizon Communications Inc. and Sprint Corp. have been forced to respond with promotions and discounts to hold on to subscribers, straining profits. Both AT&T and Verizon missed third-quarter earnings estimates.
"T-Mobile's performance comes at the expense of Sprint and AT&T, and they look even more vulnerable as we head into the all-important holiday selling season," Kevin Roe, an analyst with Roe Equity Research LLC, based in Dorset, Vermont, said before the earnings release. "Legere ain't gonna slow down."
Legere boosted his forecast for subscribers, projecting that T-Mobile will add 4.3 million to 4.7 million new customers in 2014. The Bellevue, Washington-based carrier previously said it expected to add 3 million to 3.5 million monthly subscribers this year and to surpass Sprint in combined prepaid and postpaid customers. The company now has 52.9 million total customers.
Legere tweeted that it was the best growth quarter in the company's history.
The company maintained its full-year forecast for $5.6 billion to $5.8 billion in adjusted earnings before interest, taxes, depreciation and amortization. T-Mobile said it expects to come in at the very low end of the range given "expected customer growth momentum."
The promotions used to draw more customers come at a cost for T-Mobile, hampering profitability. In the third quarter, adjusted Ebitda of $1.35 billion fell short of analysts' average projection for $1.5 billion, according to estimates compiled by Bloomberg. Revenue rose to $7.35 billion compared with estimates for $7.47 billion. Analysts had also expected net income of 5 cents a share.
The profit margin for wireless service was 24 percent, narrower than the 25.9 percent estimated by analysts.
In the quarter, the average monthly-customer phone bill of $49.84 was up about 1 percent from the second quarter. Analysts estimated $48.55 on average. T-Mobile said the average bill will be down about 2.5 percent in the fourth quarter partly because of promotions, and then rise sequentially in the first quarter of 2015.
Shares of T-Mobile fell 0.5 percent to $27.99 at the close in New York before the results were announced. The stock has declined 17 percent this year.
T-Mobile scheduled the earnings release just ahead of Legere's appearance at a Re/code conference tonight.
Legere is seeking to prove T-Mobile can thrive on its own after three aborted takeover attempts in the past three years. Earlier this month, Iliad SA scrapped its offer to buy a majority stake in T-Mobile, joining Sprint and AT&T in failing to win control of the company.
For now, T-Mobile remains two-thirds owned by Deutsche Telekom AG. A fourth suitor could emerge in Charlie Ergen, chairman of Dish Network Corp., who contacted Deutsche Telekom to say he is interested in a future acquisition of T-Mobile, people with knowledge of the matter said in early September.
Board members of Deutsche Telekom have been split over whether the German carrier should sell its only growing asset, people familiar with the matter said last month. Legere has expressed confidence that his overseers in Germany are backing his strategy.
"The company is doing extremely well so I can do whatever the f--- I want," Legere said this month.
--With assistance from Olga Kharif in Portland.
To contact the reporter on this story: Scott Moritz in New York at smoritz6bloomberg.net To contact the editors responsible for this story: Sarah Rabil at srabilbloomberg.net Lena Lee