T-Mobile Struggles to Compete, Loses Subscribers, Income

T-Mobile is preparing for a merger with AT&T (s t) which increasingly seems like a good thing for the carrier when you consider its latest quarterly result  T-Mobile USA reported  a loss of 99,000 subscribers in the first quarter, with 471,000 net contract subscribers leaving the carrier, up from 118,000 net contract subscriber losses in the same period a year ago. T-Mobile was able to make up for some of its losses with an increase in less-lucrative pre-paid and MVNO subscribers with 372,000 new pre-paid users, compared to 41,000 new pre-paid subscribers a year ago. Overall, T-Mobile’s subscriber base is 33.63 million customers, down from 33.71 million at the end of the first quarter of 2010.

The carrier said first quarter revenue was flat, at $4.63 billion from the same period a year ago, while net income fell to $135 million from $362 million in the first quarter of 2010.

The numbers for T-Mobile are more troubling in light of the fact that fellow operators AT&T, Verizon (s vz) and Sprint (s s) all had generally positive results in the first quarter. Third-place Sprint, for example, added 1.1 million customers, reduced its churn to record lows and boosted average revenue per postpaid user to $65 from $55 a year ago. T-Mobile’s contract churn was 2.4 percent, up from 2.2 percent a year earlier, while contract ARPU (average revenue per user) was $52, a modest increase from $51 a year earlier, while blended ARPU was $46, flat with the year before.

There were some bright spots for T-Mobile. The carrier said 9.1 million subscribers are using 3G or 4G, an increase of almost 1 million users. Data service revenues came in at $1.33 billion for the first quarter, up 20 percent from the previous year.

Still, T-Mobile continues to struggle against its larger competition. The company said churn, for example, was driven by “continued competitive pressures in the U.S. wireless industry.” The fact that the iPhone arrived on Verizon (s aapl) could have added to T-Mobile’s problems, giving customers a reason to leave. T-Mobile is also having to keep up with its rivals in expanding its network as it ramps up its 4G coverage. Capital expenditures were $749 million in the first quarter, up from $666 million in the same period a year ago, driven by upgrades to a 42 Mbps HSPA+ network.

The tough picture underscores why T-Mobile felt it was good to merge with AT&T. The business of running a competitive wireless network is just getting harder as the cell phone market gets more saturated and T-Mobile tries to keep up with bigger rivals with more devices and resources. T-Mobile said it’s not looking ahead to its possible merger with AT&T and is prepared to compete now in the U.S. market though it continues to face challenges ahead. But with results like this, T-Mobile had better hope its deal with AT&T gets approved.