T-Mobile boosts prepaid market, loses subscribers

Carrier saw strong growth in the prepaid cell phone market for the fourth quarter, though it continued to lose valuable contract customers.

T-Mobile USA gained ground in signing up new subscribers during the fourth quarter, but much of the surge came from its prepaid business.

T-Mobile USA parent company Deutsche Telekom reported earnings on Thursday. The U.S. carrier, the smallest of the big four nationwide carriers, said it added a total of 371,000 new subscribers in the fourth quarter. This is an improvement over customer losses from the third quarter. But it's still lower than customer gains the company saw in the fourth quarter of 2008.

In total, T-Mobile USA now has 33.8 million subscribers, up from 33.4 million in the third quarter and 32.8 million in the fourth quarter of 2008.

Customer growth is good news for T-Mobile USA, but the company is still struggling to expand the highly valuable contract customer base.

In fact, the company actually lost 117,000 net contract customers in the fourth quarter. This was better than the third quarter when it lost 140,000 net contract customers. It had added 267,000 net contract customers in the fourth quarter of 2008.

Meanwhile, T-Mobile USA added a slew of prepaid customers, including ones from wholesale partners. In the fourth quarter, it added 488,000 prepaid customers, up from 63,000 in the third quarter of 2009 and 355,000 in the fourth quarter of 2008. The company said that higher wholesale net customer additions were the primary reason for the sequential and year-on-year increase in prepaid additions. Wholesale customers totaled 2 million as of December 31.

Still, T-Mobile says that 79 percent of its customers are on a contract, down slightly from 82 percent of its base in the fourth quarter of 2008.

Why does it matter? Contract customers are more valuable subscribers to wireless operators because they tend to spend more money and they are less likely to leave the service.

During the fourth quarter, contract customers spent on average about $51 per month. On average, prepaid customers spent about $18 a month.

More troubling for T-Mobile is the fact that both these average monthly spends were down sequentially and were also down when compared with the same quarter a year ago.

T-Mobile USA is the fourth largest wireless operator in the U.S. and has trailed far behind its national competitors, AT&T, Verizon Wireless, and Sprint Nextel. It has also been late to the 3G market, and the operator, which acquired more spectrum in the Federal Communications Commission's AWS auction, is still building that network.

As T-Mobile has been losing valuable subscribers, AT&T and Verizon Wireless have added millions of new customers. Rumors have flown that Deutsche Telekom is looking to spin off T-Mobile or combine it with another wireless entity. But so far no action has been taken.

The company continues to build its 3G wireless network. T-Mobile has said that its network could potentially offer service to more than 200 million people. It also recently launched the first HSPA+ market in Philadelphia with plans to continue rolling out the faster 3G wireless service across the country.

 

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