T-Mobile reports Q3 financial results

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Press Release

T-MOBILE USA REPORTS THIRD QUARTER 2008 RESULTS

T-Mobile USA, Inc. today reported third quarter 2008 results. At the end of the quarter, T-Mobile USA had 32.1 million customers, adding 670,000 net new customers during the third quarter, and OIBDA of $1.53 billion, up 8% compared to the third quarter of 2007.

“In the quarter, T-Mobile took giant steps forward in driving new innovations to meet the pressing needs of our customers,” said Robert Dotson, President and CEO, T-Mobile USA. “We introduced our customers to the T-Mobile @Home® landline replacement service at a time when saving money is a top priority for American households. We also established our new nationwide high-speed 3G services, which will cover 120 cities by the end of November. This network introduction was accompanied by the unveiling of the T-Mobile G1 with Google, the world’s first device built on the fully open Android operating platform giving consumers access to some of the most innovative mobile applications to ever come to market. These and other innovations are helping us aggressively compete as we debut new and craved-for services that truly meet customer needs and inspire greater long term loyalty to our brand.”

“T-Mobile USA continues to be one of the strong growth drivers for Deutsche Telekom,” said René Obermann, Chief Executive Officer, Deutsche Telekom. “With the introduction of its 3G network in the U.S. and the successful launch of the T-Mobile G1 with Google, T-Mobile USA is now in an excellent position to further leverage the enormous potential of mobile data in its market.”
Customers

In the third quarter of 2008, T-Mobile USA added 670,000 net new customers, up from 668,000 in the second quarter of 2008, and down from 857,000 in the third quarter of 2007.
The number of net new customer additions was consistent sequentially, despite higher gross customer additions. This is primarily due to higher contract churn, as explained below. Gross customer additions were higher both sequentially and compared to the third quarter of 2007. This is a reflection of successful products such as myFavessm, FlexPaysm – an innovative hybrid plan that combines elements of traditional postpaid and prepaid plans, and T-Mobile @Home, a landline replacement product that was launched at the beginning of the third quarter of 2008.
Contract customer net additions decreased in the third quarter of 2008 making up almost 44% of customer growth, down from 80% in the second quarter of 2008 and 65% in the third quarter of 2007.
Prepaid net additions were 377,000 in the third quarter of 2008, up from 143,000 in the second quarter of 2008 and 300,000 in the third quarter of 2007. The sequential increase in prepaid net customer additions was due to improved prepaid churn and higher reseller net customer additions. The majority of prepaid net additions in the third quarter of 2008 were FlexPay no-contract customers, which typically have a higher ARPU than legacy prepaid customers, as discussed below.
myFaves continues to be very popular with our customers. At the end of the third quarter of 2008 there were over 7 million myFaves customers, up from 6.5 million at the end of the second quarter of 2008 and 3.5 million in the third quarter of 2007.
Contract customers comprised 83% of T-Mobile USA’s total customer base at September 30, 2008. T-Mobile USA ended the quarter with 32.1 million customers.

Churn

Contract customer churn was 2.4% in the third quarter of 2008, up from 1.9% in the second quarter of 2008 and 2.0% in the third quarter of 2007.
The sequential increase in contract churn was primarily due to the continued impact of customers coming to the anniversary of their two-year contract that was first introduced in April 2006. The second quarter of 2008 was the first quarter these two-year contracts could have expired. Competitive pressure also contributed to the sequential increase in contract churn.

Blended churn, including both contract and prepaid customers, was 3.0% in the third quarter of 2008, up from 2.7% in the second quarter of 2008 and 2.9% in the third quarter of 2007.
OIBDA and Net Income

T-Mobile USA reported OIBDA of $1.53 billion in the third quarter of 2008, down from $1.58 billion in the second quarter of 2008 and up from the $1.41 billion in the third quarter of 2007.
The sequential decrease in OIBDA was primarily due to higher customer acquisition costs, as commissions expense increased due to volumes, and higher general and administrative costs.
OIBDA margin was 31% in the third quarter of 2008, down from 32% in the second quarter of 2008 and the third quarter of 2007.
Net income for the third quarter of 2008 was $442 million, down from the $452 million in the second quarter of 2008 and $526 million in the third quarter of 2007.

Revenue

Service revenues (as defined in Note 1 to the Selected Data, below) were $4.91 billion in the third quarter of 2008, up from $4.85 billion in the second quarter of 2008, and $4.33 billion in the third quarter of 2007.
The increase in service revenues year over year was primarily due to the growth in contract customers, including the impact of the SunCom Wireless acquisition.
Total revenues, including service, equipment, and other revenues were $5.51 billion in the third quarter of 2008, slightly up from $5.47 billion in the second quarter of 2008 and $4.89 billion in the third quarter of 2007.
The acquisition of SunCom, and its second full quarter consolidation in T-Mobile USA’s results, contributed $192 million to total revenues in the third quarter.

ARPU

Blended Average Revenue Per User (“ARPU” as defined in note 1 to the Selected Data, below) was $52 in the third quarter of 2008, consistent with $52 in the second quarter and down from $53 in the third quarter of 2007.
Contract ARPU was $55 in the third quarter of 2008, consistent with the second quarter of 2008 and down from $57 in the third quarter of 2007.
The decrease in contract ARPU year over year was primarily due to lower usage based revenues from contract customers.
Prepaid ARPU was $24 in the third quarter of 2008, up from $23 in the second quarter of 2008 and $18 in the third quarter of 2007.
The increase in prepaid ARPU is due to the success of higher ARPU of FlexPay no-contract compared to legacy prepaid products.
Data services revenue (as defined in Note 1 to the Selected Data, below) was $850 million in the third quarter of 2008, representing 17.3% of blended ARPU, or $8.90 per customer, compared with 16.6% of blended ARPU, or $8.60 per customer in the second quarter of 2008, and 15.4% of blended ARPU, or $8.10 per customer in the third quarter of 2007. Data services revenue increased 28% year over year.
Growth in messaging revenue continued to be the most significant driver of data ARPU, as customers continue to move towards purchasing plans that include messaging, including our unlimited voice and data plans. The total number of messages on the T-Mobile USA network increased to almost 49 billion in the third quarter of 2008, compared to 41 billion in the second quarter of 2008 and 21 billion in the third quarter of 2007.
Strong GPRS / EDGE access and usage through continued growth in converged device users was another significant driver for increased data revenues.

CPGA and CCPU

The average cost of acquiring a customer, Cost Per Gross Add (“CPGA” as defined in note 4 to the Selected Data, below) was $290 in the third quarter of 2008, down from $320 in the second quarter of 2008 and up from $280 in the third quarter of 2007.
The decrease in CPGA compared to the second quarter of 2008 is primarily due to higher gross customer additions, in particular lower advertising expense per customer.
Excluding the impact of SunCom, T-Mobile USA’s CPGA in the third quarter of 2008 would have been $280, consistent with the third quarter of 2007
The average cash cost of serving customers, Cash Cost Per User (“CCPU” as defined in note 3 to the Selected Data, below), was $25 per customer per month in the third quarter of 2008, consistent with the second quarter of 2008 and lower than CCPU of $26 in the third quarter of 2007.
The decrease in CCPU in the third quarter of 2008 versus the third quarter of 2007 is primarily due to lower network costs per customer, driven by lower roaming expense per customer.

Capital Expenditures

Cash capital expenditures (see note 7 to the Selected Data below) were $956 million in the third quarter of 2008, compared with $1,062 million in the second quarter of 2008 and $500 million in the third quarter of 2007.
The year over year increase in capital expenditures is primarily due to the build out of T-Mobile USA’s 3G (UMTS / HSDPA) network as well as cash payment timing differences.
T-Mobile USA continued its commitment to improve coverage in the third quarter of 2008, adding approximately 900 GSM/GPRS/EDGE new cell sites, bringing the total number of cell sites at the end of the quarter to 42,900.
T-Mobile USA ended the quarter with 14,700 3G capable cell sites (included in the 42,900 total cell sites above).

Stick Together Highlights

On September 5, 2008, T-Mobile USA launched the T-Mobile products and services in the previously branded SunCom markets, including Puerto Rico. Additionally, all major SunCom systems have been integrated into T-Mobile USA as of the end of the third quarter of 2008.
On October 17, 2008, T-Mobile USA, Inc. announced that it continues to aggressively expand its third-generation (3G) wireless broadband service in more than 120 major cities by the end of November. On October 30, 2008, T-Mobile added Washington D.C. as the latest major population center to benefit from T-Mobile’s 3G service.
On September 23, T-Mobile USA announced the launch of the world’s first Android™-powered mobile phone in partnership with Google. Available in the fourth quarter 2008 only for T-Mobile customers in the USA, the T-Mobile G1 combines full touch-screen functionality and a QWERTY keyboard with a mobile Web experience.
In order to provide more options to customers, on October 8, T-Mobile began offering postpaid month-to-month rate plans without a requirement for customers to sign an annual contract. All postpaid rate plans including single line, FamilyTime, and myFaves are available under this new service option.
In August, T-Mobile USA launched the feature of Family AllowancesSM which allows parents to give their family members an upfront monthly wireless allowance that works on all the phones T-Mobile offers – virtually eliminating the worry of surprise overages.