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T-Mobile US posts first subscriber growth in four years

Signage for a T-Mobile store is pictured in downtown Los Angeles, California August 31, 2011. REUTERS/Fred Prouser
Signage for a T-Mobile store is pictured in downtown Los Angeles, California August 31, 2011. REUTERS/Fred Prouser

By Sinead Carew

NEW YORK (Reuters) - T-Mobile US on Thursday reported second-quarter subscriber growth that blew past analysts' expectations and ended four years of customer losses, boosted by a big marketing push and its launch of Apple Inc's iPhone.

Heavy spending on marketing weighed on the company's financial results, but its corporate parent, Deutsche Telekom AG, said it would plow more money into the No. 4 U.S. mobile provider to help it continue to grow.

T-Mobile US shares were up 2.95 percent in afternoon trading.

Amid increasingly tough competition in the U.S. mobile market, T-Mobile US is battling much bigger rivals Verizon Wireless, AT&T Inc and Sprint Corp.

Chief Executive John Legere said T-Mobile US' growth in the second quarter was helped by customer defections from Sprint and AT&T, and he said the trend was continuing in the third quarter. He pledged to ramp up his battle plan with a new offering aimed at luring more customers from rivals.

"It's going to solve another customer pain point and it's going to unveil another weakness with major players," Legere said in a conference call with analysts. He declined to give details about the plan but said it would come soon.

T-Mobile US said it added a net 688,000 contract customers in the second quarter, including wireless broadband customers and phone users, well ahead of the average estimate for 140,000 from four analysts.

By comparison, AT&T added just over 550,000 subscribers in the quarter, while Sprint lost 1.045 million contract customers as it shut down its Nextel network. In its marketing, T-Mobile US often compares its prices and policies to those of AT&T.

Legere said he was not worried about efforts by rivals to fight back, saying AT&T was "in full fight-back mode" already. AT&T tried to buy T-Mobile US in 2011 but the deal was blocked by U.S. regulators. Since then, competition between the companies has intensified.

Some analysts are worried that Sprint, the No. 3 U.S. mobile operator, could become a more formidable rival in the future as Japan's SoftBank Corp - a tough competitor in its home market - has taken a 79 percent stake in Sprint.

New Street analyst Jonathan Chaplin was impressed with T-Mobile US' customer growth, but he questioned whether it would be able to keep up the pace.

"The question remains as to whether TMUS can sustain the performance in postpaid as the iPhone buzz fades and competitive intensity rises," Chaplin said in a research note.

DISH PROSPECTS

T-Mobile US reported its results two days after Charlie Ergen, chairman of satellite TV company Dish Network, said T-Mobile US was a possible acquisition target.

Legere said he was willing to take a look "if in fact (Ergen) wants to discuss it," but added he does not urgently need a deal.

"We're not sitting there waving a flag saying we need somebody to save us," Legere told Reuters in an interview. "It's certainly not something I'm sitting here panting over and caring one way or the other whether he put us in the top of his list..."

EBITDA DECLINE

Analysts said T-Mobile US' growth prospects are not guaranteed. While customer growth boosted revenue in the second quarter, T-Mobile US had to spend heavily on marketing to attract new users.

The company, which merged with smaller rival MetroPCS in April, said that including MetroPCS, adjusted second-quarter earnings before interest, tax, depreciation and amortization (EBITDA) dropped 30 percent from a year earlier to $1.3 billion.

Chaplin said he had expected $1.33 billion.

T-Mobile US, which last recorded subscriber growth in the first quarter of 2009, set a target for 2013 net subscriber additions of between 1 million and 1.2 million.

Citi analyst Michael Rollins said that target suggests a slowdown in growth from the second quarter.

"We believe second-quarter headline results could be as good as it gets for a little while," Rollins said in a research note.

For the full year 2013, T-Mobile US reduced its target for adjusted EBITDA to a range of $5.2 billion to $5.4 billion from its December target of $5.8 billion to $6 billion. Chief Financial Officer Braxton Carter told analysts the decline was due to increased spending required to fuel subscriber growth.

T-Mobile US forecast capital expenditures of $4.2 billion to $4.4 billion for 2013.

The company reported a net loss of $54 million, or 2 cents per share, for the second quarter, compared with a profit of $175 million, or 39 cents per share, a year earlier.

Revenue rose 27.5 percent to $6.23 billion, primarily due to the inclusion of MetroPCS results and record smartphone sales.

Earlier this year, T-Mobile US eliminated phone subsidies and set up phone installment payment plans for its customers, with the idea that customers might upgrade their phones more often.

AT&T and Verizon Wireless have followed suit, touting their own version of T-Mobile US' offer of more frequent phone upgrades, but they have been criticized for effectively charging customers twice for their phones in exchange for more upgrades.

Including pre-paid and wholesale customers, T-Mobile US recorded net additions of 1.1 million customers in the second quarter.

Shares of T-Mobile US, which is 74 percent-owned by Deutsche Telekom, were up 71 cents at $24.72 in afternoon trading on the New York Stock Exchange.

(Reporting by Sinead Carew in New York and Sakthi Prasad in Bangalore; Editing by John Wallace)

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