T-Mobile USA Seeks Sales Growth, Mulls Partnerships

T-Mobile USA CEO Philipp Humm
Philipp Humm, president and chief executive officer of T-Mobile USA Inc. Photographer: Michael Nagle/Bloomberg

Deutsche Telekom AG’s T-Mobile USA unit plans to add $3 billion to sales by 2014 and is considering partnerships in its efforts to acquire spectrum for the next generation mobile-phone network.

The fourth-largest mobile-phone operator in the U.S. after Verizon Wireless, AT&T Inc. and Sprint Nextel Corp. accounts for about a quarter of the German company’s sales and has seen profit slide as it trailed rivals in building out a third-generation mobile network and missed out on Apple Inc. iPhones.

“T-Mobile is now ready to turn the business around,” Philipp Humm, the unit’s chief executive officer, said in a presentation to investors in New York today. The unit’s sales will be increased by offering customers the “best” data plan and the “best” fourth-generation network, he said.

The moves are aimed at adding more customers and boosting sales and profit at T-Mobile USA. The company saw annual customer growth slow to 10 percent from more than 40 percent between 2002 and 2008. In 2009, it had a 3.2 percent growth in net new customers and the share of high-margin customers slid to 79 percent from 89 percent in 2003.

“The company is making good money and today the team is confident in the future to do even better,” Deutsche Telekom CEO Rene Obermann said. “In the U.S. we have $50 of revenues per user per month. That compares to $30 in Western Europe.”

T-Mobile said revenue is set to grow again and margins will stabilize this year. Sales fell 1.6 percent in 2009 to $21.5 billion and margins slid to 31 percent from 32 percent in 2008.

Deutsche Telekom shares closed up 1.22 percent at 9.72 euros in Frankfurt trading, giving the company a market value of $42 billion euros.

IPhone Effect

T-Mobile USA, which doesn’t offer iPhones in the U.S., said it wants to reduce the number of contract customers lost per month, or the churn rate, to 2 percent this year and to below 1.8 percent in 2012, from 2.3 percent 2009 and 2.4 percent in the third quarter of 2010.

Humm said 10 percent of all customer departures can be traced back to people leaving for operators that carry iPhones.

The unit plans to counter those losses by going “big” with smartphones that run on Google Inc.’s Android platform.

“We estimate that 150 million Americans want smartphones,” Humm said. He said T-Mobile USA is creating a $10 data plan for smartphones and will push to sell the devices below $100 apiece. T-Mobile is also targeting a service revenue margin in the mid-30s percentage range by 2015, from 28 percent in the third quarter of 2010.

Obtaining Spectrum

Obermann and Humm said one of the challenges T-Mobile USA faces is to obtain spectrum to build the next generation network, using long-term evolution, or LTE.

“Deutsche Telekom is exploring various options to acquire additional spectrum and reduce the gap regarding economies of scale compared with its larger competitors, including partnering with other companies,” the company said in a statement. The executives declined to name potential partners.

The executives said the U.S. unit is “generally strong enough to fund itself and will do this with regard to future investments,” and could sell non-core assets, including the U.S. tower portfolio, according to the presentation.

For now, the company’s network is adequate to meet demand, Humm said, adding there are no announcements imminent on spectrum. Building out an LTE network may cost between $1 billion and $2 billion, the company said. Chief Technology Officer Neville Ray said that T-Mobile will need a spectrum partner by 2014 or 2015.

‘A Few Years’

“We are not pursuing large-scale cash acquisitions,” Obermann said.

The company said it will introduce LTE technology “once devices are readily available and once device quality is on par” with its current HSPA+ network “although that will probably not be for a few years.”

It said the progression from HSPA+ to LTE is “simpler and more cost effective than for competitors who have to re-equip from other technologies.”

Verizon activated its LTE service last month, while AT&T expects to start selling faster LTE services this year.

Humm said today T-Mobile USA’s HSPA+ speeds can rival LTE and will this year reach up to 42 megabits per second, up from 21 in 2010. According to Ray, LTE will this year reach speeds of 76 mbits/s.

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