If AT&T and Verizon have built networks and premium-priced data plans that allowed them to report record profit and rising dividends in recent years, T-Mobile (TMUS) and its brash CEO John Legere appear to have a strategy to eviscerate those shareholder-focused objectives in favor of lower prices for consumers across the U.S.
Legere's biggest coup yet will be to prove that winning customers' hearts will also win over shareholders for the long term. If wedding season has just begun, it may be the year where T-Mobile, its customers and its shareholders tie the knot for good.
The alternative could also be the disillusionment that often comes when someone promises too much. "The U.S. wireless industry is seeing just a glimpse of what competition looks like," Legere told analysts on Thursday. Consumers are jumping for joy, he said.
More on that later...
Record Growth, No Mention of Profits
Wireless consumers are in force behind Legere's strategy. T-Mobile said on Thursday it added 2.4 million subscribers in the first quarter, its first quarter of over 2 million subscriber additions and its fourth straight quarter of over 1 million net additions.
"A year ago I promised that we would bring change to what I called this arrogant US wireless industry. We are delivering on that promise and our results reflect the growing customer revolution that we've ignited," CEO Legere said in a press release. Legere, a Twitter addict, had other things to add on the micro-blogging site.
We have outpaced the competition AGAIN - 12 times over! I shit you not! http://t.co/neCrKUgKYHJohn Legere (@JohnLegere) May 1, 2014
Don't, however, expect Legere or T-Mobile to discuss how their strategy will drive profits. Net income, the most basic measure of corporate profits, isn't mentioned in T-Mobile's first-quarter earnings press release.
A filing by T-Mobile with the Securities and Exchange Commission has the figure: the company reported a $151 million loss for the quarter and a $28 million operating loss.
Even T-Mobile's preferred non-GAAP measures of first-quarter earnings that were disclosed in its press release show the financial impact of its recently-launched Simple Choice plan, an investment in tablet activations, and reimbursements of early termination fees for those switching to the company's network.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell 12% in T-Mobile's best-ever quarter. Revenue, in contrast grew 47%, due to the recent acquisition of MetroPCS. When accounting for the impact of acquisitions, total revenue grew over 15% and service revenue grew 4.5% year over year.
So how can revenue grow and adjusted EBITDA drop? It's simple: promotions.
Average revenue per user of T-Mobile's postpaid plans fell 7.5% year over year, after falling 8.5% at this time last year. That is an about 8% compound annual drop in prices paid by consumers over the past 24 months.
Clearly, CEO Legere has focused T-Mobile's efforts on customers. To be fair, MetroPCS merger costs are also running through T-Mobile's financial statements, draining profits. Meanwhile, the company is attacking what it sees as the arrogantly priced family plans of its competitors and not necessarily cutting prices in its offerings.