T-Mobile shows a rare profit as its growth spurt continues

John Legere’s Uncarrier campaign may have landed T-Mobile plenty of customers over the last two years, but Uncarrier’s numerous consumer enticements haven’t exactly been friendly to the actual carrier’s bottom line. T-Mobile has posted quarterly losses far more often than it’s reported gains, but the fourth quarter was a welcome exception to the rule.

[company]T-Mobile U.S.[/company] reported a net Q4 profit of $101 million, which, coupled with its even more gainful second quarter, put T-Mobile in the black for the year with a total net income of $247 million. That may pale in comparison to the $12 billion in profits posted by Verizon in 2014, but it should help quiet some of the criticism that T-Mobile is gaining customers at the expense of profits.

T-Mobile added 2.1 million new connections to its networks in Q4, capping off 2014 with 8.3 million more customers than it had at the beginning of the year. T-Mobile now has 55 million connections total and is now nearly tied with the country’s third largest carrier, Sprint (which ended the year with 56 million subscribers).

In 2015 T-Mobile is projecting another big growth year, though not quite as big as 2014. In its forward-looking guidance, T-Mobile said it expects to add between 2.2 million and 3.2 million postpaid subscribers (customers who subscribe to its core Simple Choice plans) in 2015, compared to the 4.9 million postpaid customers it attracted in 2014.

T-Mo’s outspoken CEO also had a few choice words about the blockbuster spectrum auction that ended last month with a record $41.3 billion raised. Of the major carriers that participated, T-Mobile wound up winning the fewest new airwaves, paying $1.77 billion, compared to the $10 billion–plus paid by [company]AT&T[/company], [company]Verizon[/company] and [company]Dish Network[/company]. On T-Mobile’s Issues and Insights blog, Legere called the auction a disaster for American consumers because it placed even more spectrum in the hands of the country’s most dominant carriers, and he accused Dish of gaming the system.

Instead of winning licenses directly, Dish bid through shell companies in order to gain massive discounts ($3.3 billion, to be specific). It’s a pretty despicable practice, but it’s a practice that all of the major carriers have engaged in in one form another. That’s why you aren’t hearing much complaining from the other operators.

In fact, T-Mobile is going into the next auction — which will reallocate valuable low-band frequencies from the TV broadcast industry to the mobile carriers — with a very big advantage. In that auction, the Federal Communications Commission is setting aside blocks of airwaves in every major market for carriers that don’t own much low-band spectrum, meaning T-Mobile and Sprint will likely get new 600 MHz licenses at sizable discounts over AT&T and Verizon.

Sprint is growing, but it’s still losing core phone customers

Marcelo Claure may have brought the struggling Sprint back to growth, but the new CEO probably wishes the company were growing in different ways. Sprint added 1 million new connections in the fourth quarter, but they were all prepaid, wholesale and tablet connections instead of core smartphone subscriptions.

In its Q4 earnings (the company’s fiscal Q3), Sprint revealed it lost 205,000 postpaid phone subscribers, the high-value customers who tend to be either on contract of premium service plans. While [company]Sprint[/company] total postpaid connections did grow by 30,000 last quarter, it was all tablets. Tablets are great, but a $30 tablet plan brings in half the revenue of a $60 smartphone plan. And as far as the slate race goes, [company]Verizon[/company] and [company]AT&T[/company] are clearly winning, connecting a combined 2.4 million tablets to their networks in Q4.

Unlike with tablets, there aren’t that many new phone customers out there. Carriers are basically poaching postpaid customers away from one another or upselling prepaid users on premium plans. So it’s pretty unreasonable to expect Sprint to post a quarter with a million new postpaid smartphone plans. But ever since Claure took over, Sprint has been focused on that segment, launching new promotions like its iPhone for Life leasing program and an offer to cut Verizon and AT&T phone bills in half.

Sprint said that due to those aggressive campaigns it had a record quarter of luring postpaid phone subscribers over to its network, but its competitors were also pretty successful at luring customers away from Sprint. Sprint’s churn rate, the percentage of customers that defect every quarter, for postpaid subscribers was 2.3 percent, double that of Verizon.

Sprint reported a loss of $2.38 billion last quarter, compared to a $1.04 billion loss a year earlier, but $1.9 billion was a one-time charge: Sprint wrote down the value of its brand. Sprint now has 55.9 million total customers.

During Sprint’s earnings call, Claure also gave an update on Sprint’s ongoing network upgrade. Sprint’s LTE network basically has three parts, each in a different phase of construction. Its main network on the PCS frequency band now covers 270 million people. Sprint has also been using its old Nextel airwaves to add LTE coverage to its footprint and that network is now in 60 percent of Sprint’s markets. Finally, the Spark network Sprint is building in the 2.5 GHz airwaves to add loads of capacity to the network now covers 125 million people.

AT&T grows by 1.9 million connections, many of which were cars

AT&T posted yet another strong quarter for new connections, but unlike previous periods this fourth quarter was driven (pun intended) largely by cars. Of its 1.9 million net subscriber additions, 800,000 were vehicles giving yet another indication that AT&T is locking down the 4G car connectivity market.

Ma Bell didn’t do too shabbily in other areas either. The carrier saw its postpaid customer base grow by 854,000, which included 148,000 new smartphone connections and nearly 1 million new tablet data subscriptions. It lost 180,000 prepaid subscribers and 65,000 wholesale subscribers, but it made up for them with 1.3 million connected device links, which includes cars and other internet-of-things devices. [company]AT&T[/company] now hosts 121 million total wireless connections on its networks.

Over the last year, AT&T has been signing deal after deal with automakers to provide the LTE link to their new 3G and 4G cars. Most of those new connected Audis, Chevys, Buicks, Cadillacs and Volvos rolled out this summer and fall (it also supplies the links to Tesla cars), leading to two big quarters of vehicle-driven growth. In Q3, it added 500,000 car connections as well.

Archrival [company]Verizon[/company] welcomed 2.07 million new connections to its networks in a Q4 that was also dominated by new tablet subscriptions. [company]T-Mobile[/company] grew by 2.1 million connections and [company]Sprint[/company] saw a rare growth spurt of 1 million new subscribers.

Financially AT&T posted a net loss of $3.9 billion after seven straight quarters of profit. AT&T said that loss is attributed to actuarial losses on its employee benefit plans, network write-offs and merger and integration expenses. AT&T just bought Mexican carrier Iusacell, and it’s in the process of acquiring both DirecTV and Nextel Mexico, all of which will give AT&T a big presence in Latin America.

“Building out Mexico is going to be a full-court press for the next few years,” CEO Randall Stephenson said at AT&T’s earnings call.

Verizon adds 2M new connections, but customer turnover increases

At a high level, Verizon had a very good fourth quarter for customer growth. It brought on board an additional 2.07 million subscriptions, upgraded many old feature phone customers to new 4G smartphones and connected 1.4 million new tablets to its network. But there were also definite signs that Verizon’s formidable wireless citadel is showing weaknesses as competition from T-Mobile and a recently rejuvenated Sprint increases.

[company]Verizon[/company]’s churn rate was the highest its been in more than two years, hitting 1.39 percent. A carrier’s churn is the percentage of overall customers who leave each quarter. Carriers with a lot of prepaid and transient customers tend have a lot higher churn, but Verizon, with its huge focus on postpaid contracts and family plans, historically tends to have the lowest turnover rate in the industry.

Of particular note, Verizon’s fabled postpaid churn rate — usually below 1 percent – jumped to 1.14 percent, which represents about 1.16 million of Verizon’s most valuable contract and family plan customers abandoning ship.

Just because a churn rate is high doesn’t mean a carrier is shrinking. It just has to court new customers more aggressively. That’s exactly what Verizon did in the fourth quarter, luring customers over from other carriers and encouraging existing customers to connect more gadgets. But CFO Fran Shammo said Verizon was only prepared to be so aggressive. Many of those departing customers left because prices were cheaper at the competition, and Verizon isn’t willing to engage in price war, preferring instead to let those customers go, Shammo said at Verizon’s earnings call.

It looks like [company]T-Mobile[/company] was the primary beneficiary. It hasn’t reported earnings yet, but earlier this month it released its subscriber numbers for 2014, showing 2.1 million net new subscribers in Q4. [company]Sprint[/company] also saw 1 million new net customer additions in the last quarter. [company]AT&T[/company] hasn’t yet released its subscriber numbers for the quarter.

Verizon by no means is crumbling under the pressure of T-Mobile’s Uncarrier strategy, but an increasing churn rate is definitely something to keep an eye on. The last time Verizon’s postpaid churn rate popped up above 1 percent was in Q1 of 2014, when Verizon actually lost phone customers for the first time in recent memory.

Verizon ended 2014 with 108 million total postpaid and prepaid connections. Though Verizon reported profits for the full year of $2.42 per share, it suffered a loss in fourth quarter of $2.15 billion, or 54 cents a share.

During the company’s earnings call, Shammo was also asked about the possible threat of Google entering the carrier biz by becoming a mobile virtual network operator. The CFO didn’t seem too worried. He pointed out MVNOs have been around for 15 years with posing any huge threat to Verizon. Shammo has a point. By becoming a virtual operator, [company]Google[/company] would need the carriers to give it wholesale access to their networks. It’s difficult to challenge an industry when you’re entirely dependent on that industry to survive.

 

Sprint is growing again, adding 1M new connections

T-Mobile tried valiantly but it didn’t overtake Sprint as No. 3 U.S. mobile carrier in 2014. Sprint actually had a great holiday season, adding 967,000 net new mobile subscriptions to its network in its fiscal third quarter ending December 31.

Like [company]T-Mobile[/company], [company]Sprint[/company] reported its subscriber numbers ahead of its official earnings next month, and the new growth should put Sprint at 56 million total connections, 1 million more than T-Mobile. Sprint actually began its turnaround over the summer when Marcelo Claure took over from ousted CEO Dan Hesse. Claure launched a series of plan changes, new programs and discounts designed to make Sprint competitive again, including its most recent “cut your bill in half” promotion.

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In Sprint’s fiscal Q2, Sprint added 464,000 net new subscriptions, but all of that growth came from wholesale connections from its mobile virtual network operator (MVNO) customers. Those customers bring a fraction of the revenue of a full retail subscriber on a Sprint plan.

In the most recent quarter, wholesale was still a big driver, accounting for half of new connections, but Sprint saw growth across the board, including 30,000 net new postpaid customers. That’s not a huge number, but considering Sprint has been shedding these valuable postpaid customers for years, any growth in the segment is a positive. Sprint also added 410,000 new prepaid customers on its Boost Mobile and Virgin Mobile brands.

T-Mobile grew by 8.3M subscribers in 2014

T-Mobile’s customer growth spurt continued into the normally busy holiday season in 2014 as it added 2.1 million new connections to its ranks. It wasn’t T-Mobile’s best quarter of the year for subscriber growth – that would be its blockbuster Q1 – but it was a good way to cap off a very successful year.

Off the back of its evolving Uncarrier strategy, T-Mobile recruited 8.3 million net new subscribers to its ranks, the carrier revealed Wednesday ahead of its official earnings next announcement next month. In a single year T-Mobile grew its customer base by 18 percent, giving it a connection total of 55 million. At the end of Q3, Sprint had 55 million subscribers as well, so if Sprint continued its customer loss streak in Q4, T-Mobile will have assumed the mantle of the country’s third largest carrier.

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T-Mobile’s gains weren’t all due to Uncarrier, though. It added 1.3 million net new postpaid customers and 266,000 net new prepaid subscribers in the quarter, but the remaining 586,000 links were comprised of wholesale connections from mobile virtual network operators (MVNOs) like Ultra Mobile, Straight Talk and Target’s Brightspot, as well as from machine to machine connections linking the internet of things. Sprint used to be king of MVNOs, but T-Mobile has become much more aggressive in attracting virtual operator customers as of late.