| [March 01, 2007] |
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T-Mobile USA Exceeds 25 Million Customer Milestone and Reports Fourth Quarter and 2006 Results
BELLEVUE, Wash. --(Business Wire)-- In the fourth quarter of 2006 T-Mobile USA, Inc (T-Mobile USA) added 901,000 net new customers, up from 802,000 net new customers added in the third quarter of 2006 and down from 1.39 million in the fourth quarter of 2005. Postpay customer net additions made up 87% of fourth quarter customer growth, up from 66% in the fourth quarter of 2005. Postpay customers comprised 85% of T-Mobile USA's total customer base at December 31, 2006. The introduction of two-year contracts earlier in 2006 continued to prove popular with customers, with over three quarters of new postpay customers opting for two-year contract terms in the fourth quarter.
Postpay churn declined to 2.1% in the fourth quarter of 2006 from 2.3% in the third quarter of 2006 and the fourth quarter of 2005. Blended churn, including both postpay and prepaid customers, was 2.9% in the fourth quarter of 2006, level with the fourth quarter of 2005, and slightly down from 3.0% in the third quarter of 2006.
"myFaves(sm) is attracting a new class of customers to our company. These customers see T-Mobile as truly standing apart by offering unique and simple ways for people to effortlessly communicate," said Robert Dotson, Chief Executive Officer and President of T-Mobile USA, Inc. "With offerings like myFaves, we continue to add high quality customers to our ranks. In the fourth quarter, we added more than 900,000 new customers - of which 783,000 were postpay customers - helping us surpass the 25 million customer mark. Recently, we also captured our fifth consecutive J.D. Power and Associates award for customer care performance. This type of honor underscores how service at T-Mobile is foundational to the kinds of breakthrough communications capabilities we make possible for our customers."
"T-Mobile USA is playing an increasingly vital role in bringing a service leadership culture to all of DT," said Rene Obermann, Chief Executive Officer, Deutsche Telekom. "At more than 25 million customers and growing, the U.S. business continues to assert its position as the leading growth driver for Deutsche Telekom."
T-Mobile USA reported OIBDA of $1.17 billion in the fourth quarter of 2006, slightly down from $1.23 billion in the third quarter of 2006 and up from $1.11 billion in the fourth quarter of 2005. The sequential fall in OIBDA occurred due to higher total customer acquisition costs related to the strong postpay customer growth and the expected continued decrease in Cingular Wireless LLC ("Cingular") wholesale revenues (see below). 2006 OIBDA was $4.71 billion - an increase of 12.6% over 2005.
T-Mobile USA's net income for the fourth quarter of 2006 was $179 million, down from $1.79 billion in the third quarter of 2006 and $2.99 billion in the fourth quarter of 2005. The lower net income compared to the third quarter of 2006 and the fourth quarter of 2005 is primarily due to the recognition of non-cash income tax benefits in both of these prior quarters.
T-Mobile USA service revenues, consisting of postpay, prepaid, roaming and other service revenues rose to $3.81 billion in the fourth quarter of 2006, up from $3.72 billion in the third quarter of 2006 and $3.26 billion in the fourth quarter of 2005. The increases are primarily due to growth in the number of customers, supported by strong postpay ARPU ("Average Revenue Per User" as defined in note 1 to the Selected Data, below). Other revenues were $122 million in the fourth quarter of 2006, down from $147 million in the third quarter of 2006 and $213 million in the fourth quarter of 2005. The main reason for the sequential and year on year decrease in other revenues is the ongoing migration of Cingular's customers to its own network following the dissolution of our network sharing venture in early 2005. Total revenues, including service, equipment, and other revenues were $4.52 billion in the fourth quarter of 2006, up from $4.37 billion in the third quarter of 2006 and $3.95 billion in the fourth quarter of 2005.
Blended ARPU was $52 in the fourth quarter of 2006, the same as the third quarter of 2006 and the fourth quarter of 2005. Postpay ARPU was $56 in the fourth quarter of 2006, the same as in the third quarter of 2006 and up from $54 in the fourth quarter of 2005. The year on year increase in postpay ARPU primarily relates to continued data revenue growth.
Data services revenue (see note 1 below) continued to grow, reaching a total of $475 million in the fourth quarter of 2006. Data services revenue was 12.5% of blended ARPU, or approximately $6.50 per customer, in the fourth quarter of 2006, compared to 11.3%, or approximately $5.90, in the third quarter of 2006 and 9.1%, or almost $4.80, in the fourth quarter of 2005. 2006 saw a significant expansion of T-Mobile USA's data device offering with the successful launch of T-Mobile MDA and SDA in February, the Sidekick 3 in July, BlackBerry Pearl in September, and T-Mobile Dash in October. The number of postpay converged device users (which is defined as including BlackBerry and Sidekick device users only) increased to almost 1.6 million by the end of the year, a net increase of over 200,000 users in the quarter. Strong growth in messaging continued to contribute to the increase in data ARPU. The total number of SMS and MMS messages increased to almost 13 billion in the fourth quarter of 2006, compared to 9.9 billion in the third quarter of 2006 and 5.4 billion in the fourth quarter of 2005.
The average cost of acquiring a customer, Cost Per Gross Add ("CPGA", as defined in note 3 to the Selected Data, below) was $300 in the fourth quarter of 2006, level with $299 in the third quarter of 2006 and up from $264 in the fourth quarter of 2005. The higher CPGA compared to the fourth quarter of 2005 is primarily due to higher marketing costs, due in part to the launch of myFaves(sm)in the fourth quarter of 2006.
The average cash cost of serving customers, Cash Cost Per User ("CCPU", as defined in note 2 to the Selected Data, below), was $25.14 per customer per month in the fourth quarter of 2006, slightly higher than $24.83 in the third quarter of 2006 and $24.32 in the fourth quarter of 2005. The sequential increase in CCPU in the fourth quarter was primarily due to higher customer retention costs.
Ongoing operational capital expenditures (purchases of property and equipment) were $675 million in the fourth quarter of 2006, compared with $569 million in the third quarter of 2006 and $807 million in the fourth quarter of 2005. Operational capital expenditures increased to $2.6 billion in 2006 from $2.3 billion in 2005. As part of its ongoing commitment to network coverage and quality, T-Mobile USA added approximately 800 new cell sites in the fourth quarter of 2006, and 3,200 for 2006 as a whole, bringing the total number of cell sites to more than 36,000. In addition, T-Mobile USA has started rolling out its UMTS network and has already deployed 3G equipment on over 1,200 cell sites in the New York metropolitan area.
During the fourth quarter, T-Mobile USA was granted the AWS spectrum for which it was the high bidder in the Federal Communications Commission's (FCC) Auction 66, more than doubling its average spectrum position in the top 100 markets. The total cost of these licenses of $4.18 billion was paid during the third and fourth quarters of 2006. Of the total $4.18 billion, $837 million was paid to the FCC directly by T-Mobile USA and $3.35 billion was paid on T-Mobile USA's behalf by Deutsche Telekom.
In 2006 T-Mobile USA continued its trend in taking highest honors in a number of key industry surveys. For the fourth consecutive reporting period T-Mobile USA was the only wireless carrier to rank highest in overall customer satisfaction among wireless telephone users in all of the six regions surveyed by J.D. Power and Associates, and T-Mobile also received the highest ranking in the J.D. Power and Associates Wireless Retail Sales Satisfaction Performance Study, again for the fourth consecutive reporting period. This successful run of awards continued into 2007, with J.D. Power and Associates announcing that T-Mobile ranked highest in Wireless Customer Care for the fifth reporting period in a row. Also in early January, T-Mobile led the VocaLabs Satisfaction Study among the four largest national wireless phone companies.
This press release includes non-GAAP financial measures. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Reconciliations from the non-GAAP financial measures to the most directly comparable GAAP financial measures are provided below following Selected Data and the financial statements.
T-Mobile USA is the U.S. operation of T-Mobile International AG & Co. KG ("T-Mobile International"), the mobile communications subsidiary of Deutsche Telekom AG ("Deutsche Telekom") (NYSE:DT). In order to provide comparability with the results of other U.S. wireless carriers all financial amounts are in US dollars and are based on accounting principles generally accepted in the United States ("GAAP"). T-Mobile USA results are included in the consolidated results of Deutsche Telekom, but differ from the information contained herein as Deutsche Telekom reports financial results in accordance with International Financial Reporting Standards (IFRS). SELECTED DATA FOR T-MOBILE USA
(`000) YE 06 Q4 06 Q3 06 Q2 06 Q1 06 YE 05 Q4 05
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---
Covered
population 239,000 239,000 239,000 238,000 234,000 233,000 233,000
--------------------------------------------------------------
--------
Customers, end
of period 25,041 25,041 24,139 23,338 22,725 21,690 21,690
---------------------------------------------------------------
-------
Thereof
postpay
customers 21,211 21,211 20,428 19,656 19,149 18,424 18,424
---------------------------------------------------------------
-------
Thereof
prepaid
customers 3,829 3,829 3,711 3,682 3,576 3,266 3,266
----------------------------------------------------------------
------
Net customer
additions 3,351 901 802 613 1,035 4,375 1,387
----------------------------------------------------------------
------
---------------------------------------------------------------
-------
Minutes of
use/post pay
customer/
month 1,031 1,022 1,049 1,041 1,013 963 985
------------------------------------------------------------------
----
Postpay churn 2.2% 2.1% 2.3% 2.2% 2.1% 2.3% 2.3%
-----------------------------------------------------------------
-----
Blended churn 2.9% 2.9% 3.0% 2.9% 2.7% 2.9% 2.9%
-----------------------------------------------------------------
-----
($ / month)
---------------------------------------------------------------
-------
ARPU
(blended)(1) 52 52 52 52 51 53 52
-------------------------------------------------------------------
---
ARPU (postpay) 55 56 56 55 54 55 54
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---
ARPU (prepaid) 22 21 22 22 22 25 24
-------------------------------------------------------------------
---
Cost of
serving
(CCPU)(2) 25.14 25.14 24.83 24.96 25.66 25.23 24.32
----------------------------------------------------------------
------
Cost per gross
add (CPGA)(3) 299 300 299 322 275 297 264
------------------------------------------------------------------
----
($ million)
-------------------------------------------------------------
---------
Total revenues 17,138 4,523 4,367 4,209 4,039 14,806 3,953
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------
Service
revenues(1) 14,511 3,813 3,723 3,586 3,389 12,308 3,261
----------------------------------------------------------------
------
OIBDA(4) 4,712 1,172 1,227 1,210 1,103 4,185 1,112
----------------------------------------------------------------
------
OIBDA margin
(5) 31% 30% 32% 32% 31% 32% 32%
------------------------------------------------------------------
----
Capital
expenditures
(6) 3,444 1,512 569 593 770 5,045 807
------------------------------------------------------------------
----
Cell sites on-
air 36,100 36,100 35,300 34,500 33,600 32,900 32,900
---------------------------------------------------------------
-------
Since all companies do not calculate these figures in the same manner, the information contained in this press release may not be comparable to similarly titled measures reported by other companies.
(1) Average Revenue Per User ("ARPU") represents the average monthly
service revenue we earn from our customers. ARPU is calculated by
dividing service revenues for the specified period by the average
customers during the period, and further dividing by the number
of months in the period. We believe ARPU provides management with
useful information to evaluate the recurring revenues generated
from our customer base.
Service revenues include postpay, prepaid, and roaming and other
service revenues, and do not include equipment sales and other
revenues. Data services revenue is a component of service
revenues. Per the consolidated financial statements below, other
revenues include Wi-Fi revenues, co-location rental income, and
wholesale revenues from the usage of our network in California,
Nevada, and New York by Cingular customers, and are therefore not
included in ARPU.
(2) The average cash cost of serving customers, or Cash Cost Per User
("CCPU") is a non-GAAP financial measure and includes all network
and general and administrative costs as well as the subsidy loss
unrelated to customer acquisition. Subsidy loss unrelated to
customer acquisition includes upgrade handset costs offset by
upgrade equipment revenues and other related direct costs. This
measure is calculated as a per month average by dividing the
total costs for the specified period by the average total
customers during the period and further dividing by the number of
months in the period. We believe that CCPU, which is a measure of
the costs of serving a customer, provides relevant and useful
information and is used by our management to evaluate the
operating performance of our business.
(3) Cost Per Gross Add ("CPGA") is a non-GAAP financial measure and is
calculated by dividing the costs of acquiring a new customer,
consisting of customer acquisition costs plus the subsidy loss
related to customer acquisition for the specified period, by
gross customers added during the period. Subsidy loss related to
customer acquisition consists primarily of the excess of handset
and accessory costs over related revenues incurred to acquire new
customers. We believe that CPGA, which is a measure of the cost
of acquiring a customer, provides relevant and useful information
and is used by our management to evaluate the operating
performance of our business.
(4) OIBDA is a non-GAAP financial measure, which we define as
operating income before depreciation and amortization. In a
capital-intensive industry such as wireless telecommunications,
we believe OIBDA, as well as the associated percentage margin
calculation, to be meaningful measures of our operating
performance. OIBDA should not be construed as an alternative to
operating income or net income as determined in accordance with
GAAP, as an alternative to cash flows from operating activities
as determined in accordance with GAAP or as a measure of
liquidity. We use OIBDA as an integral part of our planning and
internal financial reporting processes, to evaluate the
performance of our senior management and to compare our
performance with that of many of our competitors. We believe that
operating income is the financial measure calculated and
presented in accordance with GAAP that is the most directly
comparable to OIBDA.
(5) OIBDA margin is a non-GAAP financial measure, which we define as
OIBDA (as described in note 4 above) divided by total revenues
less equipment sales.
(6) In accordance with US GAAP, capital expenditures include amounts
paid by T-Mobile USA, but exclude amounts paid by affiliate or
parent companies on T-Mobile USA's behalf.
T-MOBILE USA Condensed Consolidated Balance Sheets (dollars in millions) (unaudited)
December 31, December 31,
2006 2005
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents................. $ 78 $ 57
Accounts receivable, net of allowances of
$203 and $198, respectively.............. 2,448 2,116
Accounts receivable from affiliates....... 136 188
Inventory................................. 612 409
Current portion of net deferred tax assets 598 275
License held for exchange................. 1,145 -
Other current assets...................... 446 437
------------- ------------
Total current assets 5,463 3,482
Property and equipment, net of accumulated
depreciation of $7,058 and $5,134,
respectively............................... 10,932 10,805
Goodwill.................................... 10,701 10,701
Spectrum licenses........................... 14,516 11,510
Other intangible assets, net of accumulated
amortization of $421 and $282, respectively 102 241
Other assets................................ 181 253
------------- ------------
$ 41,895 $ 36,992
============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................... $ 1,702 $ 1,665
Current payables to affiliates............ 1,183 53
Accrued liabilities....................... 1,253 1,082
Liability for license exchange............ 1,145 -
Deferred revenue.......................... 365 373
------------- ------------
Total current liabilities................. 5,648 3,173
------------- ------------
Long-term payables to affiliates............ 7,773 6,457
Deferred tax liabilities.................... 491 906
Other long-term liabilities................. 756 1,697
------------- ------------
Total long-term liabilities. 9,020 9,060
------------- ------------
Voting preferred stock held by parent
company.................................... - 5,000
Minority interest in equity of consolidated
subsidiaries............................... 84 65
Commitments and contingencies
Stockholder's equity:
Common stock.............................. 44,462 39,452
Accumulated deficit....................... (17,319) (19,758)
------------- ------------
Total stockholder's equity 27,143 19,694
------------- ------------
$ 41,895 $ 36,992
============= ============
T-MOBILE USA Condensed Consolidated Statements of Operations (dollars in millions) (unaudited)
Quarter Quarter Year Year
Ended Ended Ended Ended
December December December December
31, 31, 31, 31,
2006 2005 2006 2005
--------- -------- -------- --------
Revenues:
Postpay......................... $3,470 $2,920 $13,078 $11,044
Prepaid......................... 235 213 945 741
Roaming and other services...... 108 128 488 523
Equipment Sales................. 588 479 1,983 1,529
Other(1)........................ 122 213 644 969
--------- -------- -------- --------
Total revenues............... 4,523 3,953 17,138 14,806
--------- -------- -------- --------
Operating expenses:
Network......................... 954 749 3,621 2,883
Cost of equipment sales......... 881 738 3,078 2,622
General and administrative...... 697 598 2,707 2,324
Customer acquisition............ 819 756 3,020 2,792
Depreciation and amortization... 623 567 2,522 2,229
--------- -------- -------- --------
Total operating expenses..... 3,974 3,408 14,948 12,850
--------- -------- -------- --------
Operating income.................. 549 545 2,190 1,956
--------- -------- -------- --------
Other income (expense):
Interest expense................ (136) (97) (486) (453)
Interest income and other, net.. (6) 22 89 29
--------- -------- -------- --------
Total other income
(expense), net............. (142) (75) (397) (424)
--------- -------- -------- --------
Income before income taxes........ 407 470 1,793 1,532
Income tax (expense)/benefit...... (228) 2,518 646 2,404
--------- -------- -------- --------
Net income........................ $ 179 $2,988 $ 2,439 $ 3,936
========= ======== ======== ========
T-MOBILE USA Condensed Consolidated Statements of Cash Flows (dollars in millions) (unaudited)
Year Year
Ended Ended
December December
31, 31,
2006 2005
--------- --------
Operating activities:
Net income...................................... $ 2,439 $ 3,936
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............. 2,522 2,229
Income tax benefit........................ (646) (2,404)
Other, net................................ 203 17
Changes in operating assets and
liabilities:
Accounts receivable.................. (284) (640)
Inventory............................ (202) 35
Other current assets................. 35 2,512
Accounts payable..................... 83 149
Accrued liabilities.................. 187 107
--------- --------
Net cash provided by operating activities.... 4,337 5,941
--------- --------
Investing activities:
Purchases of property and equipment............. (2,608) (2,338)
Joint venture and network transaction with
Cingular....................................... - (2,282)
Acquisitions of spectrum licenses and wireless
properties..................................... (837) (425)
Proceeds on disposal of assets.................. 22 22
Investments in and advances to unconsolidated
affiliates, net................................ 1 -
Short-term loan receivable from affiliate....... (750) -
--------- --------
Net cash used in investing activities........ (4,172) (5,023)
--------- --------
Financing activities:
Long-term debt repayments to affiliates......... (150) (1,205)
Long-term debt borrowing from affiliates........ - 100
Other, net...................................... 6 62
--------- --------
Net cash used in financing activities........ (144) (1,043)
--------- --------
Change in cash and cash equivalents................. 21 (125)
Cash and cash equivalents, beginning of period...... 57 182
--------- --------
Cash and cash equivalents, end of period............ $ 78 $ 57
========= ========
T-MOBILE USA Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (dollars in millions, except for CPGA and CCPU) (unaudited)
OIBDA can be reconciled to our operating income as follows:
YE Q4 Q3 Q2 Q1 YE Q4
------- ------- ------- ------- ------- ------- -------
2006 2006 2006 2006 2006 2005 2005
------- ------- ------- ------- ------- ------- -------
OIBDA $4,712 $1,172 $1,227 $1,210 $1,103 $4,185 $1,112
Depreciation
and
amortization (2,522) (623) (654) (651) (594) (2,229) (567)
------- ------- ------- ------- ------- ------- -------
Operating
income $2,190 $549 $573 $559 $509 $1,956 $545
======= ======= ======= ======= ======= ======= =======
The following schedule reflects the CPGA calculation and provides a reconciliation of cost of acquiring customers used for the CPGA calculation to customer acquisition costs reported on our condensed consolidated statements of operations:
YE Q4 Q3 Q2 Q1 YE Q4
------- ----- ----- ----- ----- ------- -----
2006 2006 2006 2006 2006 2005 2005
------- ----- ----- ----- ----- ------- -----
Customer acquisition
costs $3,020 $819 $775 $737 $689 $2,792 $756
Plus: Subsidy loss
Equipment sales (1,983) (588) (497) (446) (452) (1,529) (479)
Cost of equipment sales 3,078 881 758 702 737 2,622 738
------- ----- ----- ----- ----- ------- -----
Total subsidy loss 1,095 293 261 256 285 1,093 259
------- ----- ----- ----- ----- ------- -----
Less: Subsidy loss
unrelated to customer
acquisition (715) (193) (160) (162) (200) (629) (171)
------- ----- ----- ----- ----- ------- -----
Subsidy loss related to
customer acquisition 380 100 101 94 85 464 88
------- ----- ----- ----- ----- ------- -----
Cost of acquiring
customers $3,400 $919 $876 $831 $774 $3,256 $844
======= ===== ===== ===== ===== ======= =====
CPGA ($ / new customer
added) $299 $300 $299 $322 $275 $297 $264
T-MOBILE USA Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (dollars in millions, except for CPGA and CCPU) (unaudited)
The following schedule reflects the CCPU calculation and provides a reconciliation of the cost of serving customers used for the CCPU calculation to total network costs plus general and administrative costs reported on our condensed consolidated statements of operations:
YE Q4 Q3 Q2 Q1 YE Q4
------- ------- ------- ------- ------- ------- -------
2006 2006 2006 2006 2006 2005 2005
------- ------- ------- ------- ------- ------- -------
Network costs $3,621 $954 $940 $878 $849 $2,883 $749
General and
administrative 2,707 697 667 682 661 2,324 598
------- ------- ------- ------- ------- ------- -------
Total network
and general
and
administrative
costs 6,328 1,651 1,607 1,560 1,510 5,207 1,347
Plus: Subsidy
loss unrelated
to customer
acquisition 715 193 160 162 200 629 171
------- ------- ------- ------- ------- ------- -------
Total cost of
serving
customers $7,043 $1,844 $1,767 $1,722 $1,710 $5,836 $1,518
======= ======= ======= ======= ======= ======= =======
CCPU ($ /
customer per
month) $25.14 $25.14 $24.83 $24.96 $25.66 $25.23 $24.32
About T-Mobile USA:
Based in Bellevue, WA, T-Mobile USA, Inc. is a member of the T-Mobile International group, the mobile telecommunications subsidiary of Deutsche Telekom AG (NYSE:DT).
T-Mobile USA's innovative wireless products and services help empower people to connect effortlessly to those who matter most. T-Mobile USA's GSM/GPRS 1900 voice and data network, when combined with roaming and other agreements, reaches almost 277 million people in the U.S. In addition, T-Mobile USA operates the largest carrier-owned Wi-Fi (802.11b) wireless broadband (WLAN) network in the country, available in more than 8,200 convenient public access locations nationwide. Multiple independent research studies continue to rank T-Mobile USA highest in wireless customer satisfaction, wireless call quality and wireless customer care in numerous regions throughout the U.S. For more information, visit the company website at www.t-mobile.com.
About T-Mobile International:
T-Mobile International is one of the world's leading companies in mobile communications. As one of Deutsche Telekom AG's (NYSE:DT) three strategic business units, T-Mobile International concentrates on the key markets in Europe and the United States.
By the end of the fourth quarter of 2006, more than 106 million mobile customers were served by the mobile segment of the Deutsche Telekom group, all over a common technology platform based on GSM, the world's most widely used digital wireless standard.
For more information about T-Mobile International, please visit www.t-mobile.net. For further information on Deutsche Telekom, please visit www.telekom.de/investor-relations.
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