T-Mobile USA, today announced second quarter 2005 results. In order to provide comparability with the results of other U.S. wireless carriers all financial amounts are in USD and are based on accounting principles generally accepted in the United States (“GAAP”). T-Mobile USA results are included in the consolidated results of Deutsche Telekom, but differ from the information contained herein as Deutsche Telekom reports financial results in accordance with International Financial Reporting Standards (IFRS).
In the second quarter of 2005, T-Mobile USA added 972,000 net new customers, compared with 957,000 added in the first quarter of 2005 and 1,092,000 in the second quarter of 2004. Approximately 70% of the growth in the second quarter of 2005 came from new postpay customers, which currently comprise over 87% of the total customer base. Approximately 30% of the growth came from new prepaid customers, reflecting the successful rebranding of T-Mobile USA’s prepaid service into “T-Mobile To Go” combined with a more attractive prepaid offering.
Average Revenue Per User (“ARPU,” as defined in the footnotes to the Selected Data, below) was $54 in the second quarter of 2005, the same as in the first quarter of 2005 and slightly down from $55 in the second quarter of 2004. Data services revenue growth continued in the second quarter, and now represents 8.2% of postpay ARPU, compared to 7.6% in the first quarter of 2005 and 5.0% in the second quarter of 2004. A key factor in data services revenue growth in the second quarter was a net increase of 92,000 BlackBerry customers during the quarter, bringing the total number of BlackBerry users to 594,000.
“As we continue our relentless focus on delivering high quality, reliable and fun wireless services at an exceptional value, more and more customers continue to reward us with their business. Equally important is the ever increasing loyalty this has created among our existing customers to the T-Mobile brand. The overall result is another quarter of balanced profitability and growth out of the U.S. business,” said Robert Dotson, President and CEO of T-Mobile USA.
T-Mobile USA’s commitment to excellent customer satisfaction earned the company highest honors, for the second straight year, in several independent studies announced by J.D. Power and Associates. According to the J.D. Power and Associates 2005 Wireless Call Quality Performance Study published last week, T-Mobile USA tied for top honors in the Northeast and Southeast regions. These honors come on the heels of top overall J.D. Power and Associates rankings, announced in the second quarter, for 2005 Wireless Customer Care Performance and 2005 Overall Business Customer Satisfaction.
T-Mobile USA reported OIBDA of $1.08 billion in the second quarter of 2005 compared to $826 million in the first quarter of 2005 and $717 million in the second quarter of 2004. OIBDA for the second quarter of 2005 includes non-cash rent expense of $40 million related to recent changes to our accounting for operating leases, approximately the same amount as in the first quarter of 2005. T-Mobile USA’s net income for the second quarter of 2005 was $387 million.
“The U.S. wireless market remains strong, and the T-Mobile USA leadership team continues to deliver superior growth and business performance relative to competitors in the marketplace,” said Rene Obermann, CEO of T-Mobile International and Member of the Board of Management, Deutsche Telekom. “T-Mobile USA remains one of our most important businesses, with a consistent track record of delivering on its commitments – both to investors and customers.”
T-Mobile USA service revenues, which consist of postpay, prepaid, roaming and other service revenues, were $3.04 billion in the second quarter of 2005, up from $2.85 billion in the first quarter of 2005 and $2.46 billion in the second quarter of 2004. Affiliate and other revenues were $269 million in the second quarter of 2005, up from $252 million in the first quarter of 2005 and $29 million in the second quarter of 2004. These revenues include revenues from our WiFi business, co-location rental income, and network usage revenues for Cingular customers in California, Nevada, and New York who have not yet transitioned to the Cingular network. Total revenues were $3.61 billion in the second quarter of 2005.
Postpay churn averaged 2.3% per month in the second quarter of 2005, consistent with first quarter of 2005 and down from 2.4% in the second quarter of 2004. Blended churn, a mix of postpay and prepaid customers, was 2.8% in the second quarter of 2005, consistent with first quarter of 2005 and second quarter of 2004.
The average cost of acquiring a customer, Cost Per Gross Add (“CPGA”, as defined in the footnotes to the Selected Data, below) was $310 in the second quarter of 2005, down from $357 in the first quarter of 2005 and $318 in the second quarter of 2004. The reduction is primarily due to lower sales and marketing expenditures, and a change in the sales mix.
The average cash cost of serving customers, Cash Cost Per User (“CCPU”, as defined in the footnotes to the Selected Data, below), was $25.66 per customer per month in the second quarter of 2005, compared to $26.48 in the first quarter of 2005, and higher than $23.09 in the second quarter of 2004. The increase in CCPU relative to 2004 reflects the inclusion in our results of 100% of the costs to operate the networks in California, Nevada and New York associated with the acquisition of full ownership of those networks at the beginning of 2005, including the costs of providing transitional network services to Cingular’s customers. The year on year increase in CCPU also reflects the change in our accounting for operating leases in the fourth quarter of 2004 – see further discussion in the footnotes to the Selected Data, below.
Capital expenditures were $815 million in the second quarter of 2005, compared with $376 million in the first quarter of 2005 (excluding the acquisition of the California and Nevada network) and $664 million in the second quarter of 2004. Approximately $235 million of the second quarter 2005 capital expenditures were for payments to the FCC for additional mobile communications licenses in 35 markets (Auction 58) through T-Mobile USA’s joint venture with Cook Inlet Region Inc. Capital expenditures in the second quarter of 2004 did not include $267 million related to the network joint venture with Cingular, which was terminated in the first quarter of 2005. T-Mobile USA also added over 1,000 new cell sites in the second quarter of 2005, bringing the total number of cell sites to almost 31,000.
This press release includes non-GAAP financial measures. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Reconciliations from the non-GAAP financial measures to the most directly comparable GAAP financial measures are provided below following Selected Data and the financial statements.