T-Mobile Posts Profit Gain Amid Price War With Verizon, AT&T

  • Acquired more new users than any other carrier last quarter
  • Investors fear pricing battles as Verizon goes unlimited

T-Mobile Profits From Wireless Price War

T-Mobile US Inc. is trying to show investors it can add new customers while also protecting profit, a much tougher challenge this year as bigger rivals take off the gloves.

The third-largest U.S. wireless carrier lured more than 4 million new subscribers in 2016, almost twice as much as No. 1 Verizon Communications Inc., by pitching free video streaming and unlimited data plans for consumers hooked on Facebook, YouTube, or Netflix. At the same time, the company posted a profit in the ultra-competitive holiday period, when promotional spending soars.

Fourth-quarter earnings rose to 45 cents a share, the Bellevue, Washington-based company said Tuesday in a statement, beating estimates of 30 cents. T-Mobile also added 1.2 million monthly wireless subscribers in the quarter, more than any other carrier. Demonstrating such strength will be critical for T-Mobile this year, with phone giant Verizon Communications Inc. now on the offensive.

Verizon’s decision to start selling a package that includes unlimited data sent the shares of almost every telecom stock tumbling Monday, as investors feared the collateral damage of a prolonged pricing battle. T-Mobile stock rose as much as 3.2 percent to $62.84 in New York Tuesday following the earnings report.

“The competitive environment this year versus last is certainly changing with a stronger Sprint and an ‘awoken bear’ in Verizon,” Wells Fargo analyst Jennifer Fritzsche wrote in a note Tuesday.

In a response to Verizon’s unlimited offering, T-Mobile reduced its two-line pricing to $100 from $120 and matched Verizon by including 10 gigabytes of hot-spot tethering.

“It’s a whole new competitive landscape,” said Kevin Roe, an analyst at Roe Equity Research LLC. “Verizon’s new push into ‘unlimited’ data raises the uncertainty around any 2017 T-Mobile guidance.”

Unlimited Plans by Carrier

1st line2nd line3rd line4th line
Verizon$80**$140$160$180
AT&T$100*$140$180$180
T-Mobile$70**$100$140$160
Sprint$50**$90$90$90
*with DirecTV subscription
**with autopay           
  • At T-Mobile, fourth-quarter sales climbed to $10.2 billion, exceeding the $9.85 billion average of estimates compiled by Bloomberg.
  • Adjusted earnings before interest, tax, depreciation and amortization grew 12 percent to $2.5 billion, matching analysts’ projections.
  • Fourth-quarter net income rose 31 percent to $390 million. For 2016, net income increased by 99 percent to $1.5 billion.
  • T-Mobile’s branded average revenue per postpaid user increased 0.7 percent to $48.37. On the year, branded postpaid phone ARPU was $47.47, down 0.4 percent from 2015.
  • T-Mobile said it expects to add between 2.4 million and 3.4 million new lucrative monthly subscribers in 2017.
  • For the full year, the carrier also expects adjusted Ebitda to be between $10.4 billion and $10.8 billion in adjusted Ebitda, which includes leasing revenues.
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