T-Mobile headquarters

It may have taken a little longer than the other carriers, but today T-Mobile finally announced their Q3 2010 results.  At the end of the third quarter, T-Mobile managed to add 137,000 customers, compared to a decline of 93,000 customers from the previous quarter, bringing the No. 4 carrier up to 33.8 million subscribers total.  Service revenues were $4.71 billion dollars, just about level with the previous quarter thanks to adoption of mobile broadband data plans offsetting lower voice revenues.  Churn, aka the number of customers leaving the carrier for one reason or another, was 3.4 percent, which is basically unchanged from both Q2 2010 and Q3 2009.  Finally, the number of T-Mo customers packing a smartphone grew to 7.2 million, up from 6.5 million in Q2 2010 and 2.8 million in Q3 2009.  You can check out the full press release below.

While T-Mobile's number of added subs may not have been nearly as high as their competitors, it's still good to see them adding customers rather than losing them like in the previous quarter.  What's really interesting to me is sharp increase in the number of subscribers using smartphones, no doubt aided by the hot, new Android and BlackBerry handsets hitting Magenta.  The number of smartphone users even managed to help balance out T-Mo's total revenue with their data subscriptions!  With T-Mobile's new 4G network and devices like the G2 and myTouch 4G, I wouldn't be surprised to see even better numbers from the carrier next quarter.

T-MOBILE USA REPORTS THIRD QUARTER 2010 RESULTS
Continuing revenue stabilization trend: Service revenues in the third quarter of 2010 at $4.71 billion, in line with the second quarter of 2010 and down 0.5% compared to the third quarter of 2009
Blended data ARPU of $12.40 in the third quarter of 2010, up from $11.60 in the second quarter of 2010, and $10.00 in the third quarter of 2009
7.2 million customers using smartphones as of the third quarter of 2010, compared to 6.5 million as of the second quarter of 2010 and 2.8 million as of the third quarter of 2009
OIBDA of $1.32 billion in the third quarter of 2010 was lower than $1.42 billion in the second quarter of 2010 due primarily to higher network costs related to expanding the mobile broadband network, and $1.56 billion in the third quarter of 2009
Net customer additions of 137,000 in the third quarter of 2010, driven by growth in wholesale customers
BELLEVUE, Wash., November 4, 2010 -- T-Mobile USA, Inc. (“T-Mobile USA”) today reported third quarter of 2010 results. In the third quarter of 2010, T-Mobile USA reported service revenues of $4.71 billion compared to $4.73 billion in the third quarter of 2009, and OIBDA of $1.32 billion compared to $1.56 billion reported in the third quarter of 2009. Net customer additions were 137,000 in the third quarter of 2010 compared to 77,000 net customer losses in the third quarter of 2009. Additionally, the number of customers using smartphones continued to increase significantly during the quarter, driving blended data ARPU growth.
 
“The revenue trend in the third quarter showed continued improvement. Lower OIBDA was a direct result of the efforts to grow smartphone customers and higher investment in T-Mobile’s 4G network. These early investments will enable us to provide great customer experiences and allow us to scale our cost structure effectively as more customers utilize data services,” said Philipp Humm, CEO and President, T-Mobile, USA.
 
René Obermann, Chief Executive Officer, Deutsche Telekom, said, "I am very pleased with the development of blended data ARPU. Along with the growing number of smartphones, this demonstrates the potential of mobile broadband data growth in the US market and for T-Mobile USA in particular."
 
Customers
T-Mobile USA served 33.8 million customers (as defined in Note 3 to the Selected Data, below) at the end of the third quarter of 2010, up from 33.6 million at the end of the second quarter of 2010, and 33.4 million at the end of the third quarter of 2009.
In the third quarter of 2010, net customer additions were 137,000, compared to a net decline of 93,000 in the second quarter of 2010 and a net decline of 77,000 in the third quarter of 2009.
Sequentially and year-on-year, the number of net new customer additions increased due primarily to higher net prepaid customer additions.
Contract net customer losses were 60,000 in the third quarter of 2010, compared to 106,000 net contract customer additions in the second quarter of 2010, and 140,000 net contract customer losses in the
third quarter of 2009.
Connected device net customer additions, included within contract customers (as defined in Note 3 to the Selected Data, below), were strong in the third quarter of 2010, but were offset by traditional postpay and FlexPaySM contract net customer losses.
Sequentially, the decline in net contract customers was driven primarily by churn as strong gross contract additions were more than offset by the impact from competitive intensity.
Year-on-year, net contract customer losses improved, driven primarily by improvements in traditional postpay customer gross additions.
Connected device customers totaled 1.8 million at September 30, 2010.
Prepaid net customer additions, including MVNO customers (as defined in Note 3 to the Selected Data, below), were 197,000 in the third quarter of 2010, compared to 199,000 net prepaid customer losses in the second quarter of 2010 and 63,000 net prepaid customer additions in the third quarter of 2009.
Traditional prepaid and MVNO customer additions drove the sequential increase in prepaid net customer additions compared to the second quarter of 2010.
Year-over-year, higher MVNO net customer additions driven by new partners were the primary reason for the increase in prepaid net customer additions. MVNO customers totaled 2.4 million at September 30, 2010.

Churn
Blended churn (as defined in Note 2 to the Selected Data, below), including both contract and prepaid customers, was 3.4% in the third quarter of 2010, consistent with the second quarter of 2010 and the third quarter of 2009.
Contract churn was 2.4% in the third quarter of 2010, up from 2.2% in the second quarter of 2010 and consistent with the third quarter of 2009.
The sequential increase in contract churn was due primarily to competitor handset offers.
Prepaid churn decreased in the third quarter of 2010 to 7.2% from 7.6% in the second quarter of 2010 and 7.4% in the third quarter of 2009.
The sequential decrease in prepaid churn was due primarily to improvements in traditional prepaid customer churn during the third quarter of 2010.
The FlexPay no-contract product was the primary reason for the year-on-year decrease in prepaid churn.

OIBDA and Net Income
T-Mobile USA reported OIBDA (as defined in Note 6 to the Selected Data, below) of $1.32 billion in the third quarter of 2010, down from $1.42 billion in the second quarter of 2010, and $1.56 billion in the third quarter of 2009.
Sequentially, level service revenues (discussed below) were offset in particular by higher network costs related to the new mobile broadband network and higher bad debt expense associated with new products, such as equipment installment plans.
Compared to the third quarter of 2009, OIBDA decreased due primarily to a higher equipment subsidy loss driven by customers adopting more costly smartphones with mobile broadband data plans and by higher gross customer additions.
OIBDA margin (as defined in Note 7 to the Selected Data, below) was 28% in the third quarter of 2010, down from 30% in the second quarter of 2010 and 33% in the third quarter of 2009.
Net income in the third quarter of 2010 was $320 million, compared to $404 million in the second quarter of 2010 and $417 million in the third quarter of 2009.

Revenue
Service revenues (as defined in Note 1 to the Selected Data, below) were $4.71 billion in the third quarter of 2010, level with $4.70 billion in the second quarter of 2010, but down slightly from $4.73 billion in the third quarter of 2009.
Service revenues were level sequentially as data revenue growth, driven by the adoption of mobile broadband data revenue plans, was offset by lower voice revenues.
Year-on-year, quarterly service revenues declined due primarily to fewer branded customers (wireless customers excluding MVNO and connected devices). However, the 0.5% decrease in quarterly service revenues year-on-year in the third quarter of 2010 was an improvement from the 1.4% year-on-year decrease in the second quarter of 2010.
Total revenues, including service, equipment, and other revenues were $5.35 billion in the third quarter of 2010, consistent with $5.36 billion in the second quarter of 2010, but down slightly from $5.38 billion in the third quarter of 2009.
Compared to the third quarter of 2009, the slight decrease in total revenues was due primarily to lower service revenues as described above.

ARPU
Blended Average Revenue Per User (“ARPU” as defined in Note 1 to the Selected Data, below) was $47 in the third quarter of 2010, consistent with the second quarter of 2010 and the third quarter of 2009.
Contract ARPU was $52 in the third quarter of 2010, in line with the second quarter of 2010 and the third quarter of 2009.
Sequentially and year-on-year, ARPU was consistent as data revenue growth offset the decline in voice revenues.
Prepaid ARPU was $19 in the third quarter of 2010, up from $18 in the second quarter of 2010 but down from $20 in the third quarter of 2009.
Compared to the second quarter of 2010, prepaid ARPU increased due to customers moving to unlimited usage plans.
The decrease compared to the third quarter of 2009 was due primarily to proportionally fewer traditional prepaid and FlexPay no-contract customers and a higher proportion of MVNO customers in the prepaid customer base.
Data service revenues (as defined in Note 1 to the Selected Data, below) were $1.26 billion in the third quarter of 2010, up 25% from the third quarter of 2009. Data service revenues in the third quarter of 2010 represented 27% of blended ARPU, or $12.40 per customer, up from 25% of blended ARPU, or $11.60 per customer in the second quarter of 2010, and 21% of blended ARPU, or $10.00 per customer in the third quarter of 2009.
7.2 million customers were using smartphones operating on the T-Mobile USA UMTS/HSPA/HSPA+ network (as defined in Note 12 to the Selected Data, below) such as the Samsung VibrantTM, HTC HD2 and BlackBerry® BoldTM 9700 at the end of the third quarter of 2010. This was an increase of 11% from 6.5 million customers as of the second quarter of 2010 and more than double the 2.8 million customers as of the third quarter of 2009. Smartphone customers now account for 21% of total customers, up from 19% in the second quarter of 2010 and 8% in third quarter of 2009.
The increase in the number of customers using smartphones and the continued expansion of the upgrade of the network are driving Internet access revenue growth with the increasing adoption of mobile broadband data plans. Additionally, messaging continues to be a significant component of blended data ARPU.

CPGA and CCPU
The average cost of acquiring a customer, Cost Per Gross Add (“CPGA” as defined in Note 5 to the Selected Data, below) was $290 in the third quarter of 2010, down from $330 in the second quarter of 2010 and consistent with $290 in the third quarter of 2009.
Sequentially, CPGA decreased in the third quarter of 2010 due primarily to an increase in gross additions and lower advertising expenses.
The average cash cost of serving customers, Cash Cost Per User (“CCPU” as defined in Note 4 to the Selected Data, below), was $24 per customer per month in the third quarter of 2010, up slightly from $23 in the second quarter of 2010 and third quarter of 2009.
Sequentially, CCPU increased due primarily to higher network costs related to the mobile broadband network expansion and higher bad debt expense associated with new products, such as equipment installment plans.
Year-on-year, CCPU was higher due in particular to a higher equipment subsidy loss as customers upgraded to more-costly smartphones and higher bad debt expense associated with new products, such as equipment installment plans.

Capital Expenditures
Cash capital expenditures (as defined in Note 8 to the Selected Data, below) were $643 million in the third quarter of 2010, compared to $682 million in the second quarter of 2010 and $787 million in the third quarter of 2009.
Sequentially and year-on-year, the decrease in cash capital expenditures was due primarily to payment timing differences.

Stick Together Highlights
T-Mobile USA’s HSPA+ 4G network (as defined in Note 11 to the Selected Data, below) now reaches more people than any other 4G network in the country reaching more than 75 major metropolitan areas across the country. T-Mobile USA is on track to reach 100 major metropolitan areas and 200 million people in the U.S. by the end of this year. An exciting line-up of products will be available to complement the network expansion.
T-Mobile USA unveiled the T-Mobile® G2TM with GoogleTM smartphone during the third quarter of 2010. The G2 breaks new ground as the first smartphone specifically designed for T-Mobile USA’s HSPA+ 4G network and is one of the first smartphones in the industry to offer the new Voice Actions feature of Google Search™, which allows voice control of the handset for completing common tasks. The T-Mobile G2 went on sale on October 6.
Also in the third quarter of 2010, T-Mobile USA revealed the first mobile tablet in T-Mobile’s AndroidTM portfolio, the Samsung Galaxy TabTM. A powerful entertainment device, the Galaxy Tab features a seven-inch touch screen, the Android 2.2 operating system, a front-facing camera for video chat, and a rear-facing camera for photos. The Galaxy Tab is expected to be available to T-Mobile USA customers this holiday season.
T-Mobile USA is also one of the two US launch partners of Microsoft’s Windows Phone® 7. In time for the holidays, T-Mobile USA will have two Windows Phone 7 devices, the Dell Venue Pro and the HTC HD7 that boasts the largest screen available on a Windows 7 smartphone in the U.S. with a 4.3-inch touch display.
The Android-powered T-Mobile myTouch® 4G, T-Mobile USA’s second HSPA+ capable smartphone, is built with families in mind and includes video with an HD Camcorder and face-to-face conversations through Video Chat. The myTouch 4G went on sale on November 3, 2010.
On October 19, 2010, T-Mobile USA announced the completion of its senior leadership transition by confirming Philipp Humm as president and chief executive officer effective November 1, 2010. Humm succeeds Robert Dotson, former president and CEO, who moves to vice chairman of the T-Mobile USA Board. Humm, an experienced DT executive and former CEO of T-Mobile Germany, was last responsible for sales and service in Europe as chief regional officer (CRO) Europe.
In the third quarter of 2010, T-Mobile USA partnered with Walmart to begin offering Walmart Family MobileTM powered by T-Mobile, a non-contract, unlimited voice and text postpay wireless product. The service, launched on September 20, 2010, is provided by T-Mobile USA over its nationwide network, and is sold exclusively by Walmart in nearly 2,500 stores. Additionally, T-Mobile USA began offering more places to purchase T-Mobile products and services as T-Mobile USA expanded into approximately 500 Target stores across the United States by the end of the third quarter of 2010.
T-Mobile USA was recognized by J.D. Power and Associates during the third quarter of 2010. On August 12, 2010, T-Mobile USA earned the highest ranking in the J.D. Power and Associates 2010 Wireless Retail Sales Satisfaction StudySM Volume 2, the third consecutive highest ranking for T-Mobile USA in that study. On September 9, 2010, J.D. Power and Associates ranked T-Mobile USA highest in the Southwest Region in their 2010 Wireless Call Quality Performance StudySM – Volume 2 and tied for the highest ranking in the Southeast Region of the United States.

T-Mobile USA is the U.S. wireless operation of Deutsche Telekom AG (OTCQX: DTEGY). In order to provide comparability with the results of other US wireless carriers, all financial amounts are in US dollars 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 Euros and in accordance with International Financial Reporting Standards (IFRS).
 
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.


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