T-Mobile forecasts slower subscriber growth in fourth quarter

Reuters News
Posted: Oct 28, 2014 4:31 PM

By Marina Lopes

WASHINGTON (Reuters) - T-Mobile US Inc warned on Tuesday that its torrid growth rate in subscribers fueled by aggressive promotions would slow in the fourth quarter along with billings per customer.

The cellular provider expects to add 700,000 to 1.1 million contract subscribers in the quarter ending Dec. 31, compared with 1.4 million in the third quarter, the company told investors in a call.

T-Mobile, which is controlled by Germany's Deutsche Telekcom, also said it expects a 2.5 percent dip in average revenue per user (ARPU).

T-Mobile, the fourth-largest U.S. carrier by number of subscribers, has attracted a wave of customers through discounts and campaigns that eliminated contracts and cut prices. But the rise in customers on promotional plans has weighed on margins.

"It is the nature of any customer acquisition-driven business that the faster you grow the more pressure it will put on profitability. You can't lose sight of the underlying economics," said Craig Moffett, analyst at MoffettNathanson.

On Monday T-Mobile announced the highest average billings per contract customer in the company's history along with high service revenue growth. Still, earnings before interest, taxes, depreciation, and amortization was flat year-over-year.

"We are very optimistic about the increase in ARPU going into next year," Chief Financial Officer Braxton Carter told investors. "We saw more of a promotional impact on Q4 than Q3," he said.

T-Mobile shares were up 1 percent to $28.28.

The telecoms operator expects to tackle renewed holiday competition in the fourth quarter by focusing on devices such as Apple Inc's iPhone, Chief Executive Officer John Legere told analysts.

"In this period of device change, I think that is a fascinating ground for us," he said, adding that the company will look to snag upwards of 17 million AT&T iPhone customers whose contracts are expiring.

"The possibilities for us and the challenges for them seem to be connected," Legere said of AT&T.

T-Mobile is for now going it alone after a series of potential deals were thwarted by regulatory and other issues. Still, Legere did not rule out potential partnerships in the future.

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"You have got to think creatively about this industry. When you do, you will realize T-Mobile is a natural ally to other players trying to get into the United States," he said.

In recent months, rumors have emerged that America Movil, Latin America's biggest telecommunications company could be a potential buyer.

T-Mobile is under pressure to come up with the billions of dollars it will need to spend in an upcoming spectrum auction to get the lower-range frequencies it needs to better compete with rivals Verizon Communications Inc and AT&T.

America Movil's chief executive said earlier this week that the company is "not talking with anybody at this stage."

(Reporting by Marina Lopes; Editing by Lisa Shumaker)