T-Mobile's Uncarrier marketing buzz is working, as the company offers a peek at its fourth quarter customer gains.
On Wednesday, T-Mobile announced preliminary results for the fourth quarter of 2014. The company said it added 2.1 million customers to its service during the quarter, which will bring its total subscriber base to more than 55 million. It . This is significant as the company looks to close the gap between itself and its next closest competitor Sprint, which ended the third quarter of 2014 with 55 million customers.
Depending on how many customers Sprint lost and added in the fourth quarter, it's conceivable that T-Mobile may surpass it as the third largest wireless provider in the US. Even if it doesn't reach this goal in the fourth quarter, it looks very likely that T-Mobile, which has been signing up more customers than any other wireless provider in the market, will overtake Sprint sometime this year.
T-Mobile's efforts to add new customers has been fueled by its Uncarrier marketing strategy, which has changed some fundamental ways in which the various carriers offer service, such as eliminating monthly contracts and offering no additional cost for international data roaming. It's also offered special deals that have undercut its competitors in terms of pricing. The change in service plans, special deals and splashy advertising campaigns have done their job to attract new customers. T-Mobile said that for 2014, the company added a total of 8.3 million customers, which is an 89 percent increase compared to the year prior.
Feel the churn
The brash carrier is still a long way from overtaking No.1 Verizon and No. 2 AT&T, but there's no question that it has been stealing customers from its bigger rivals. T-Mobile reported Wednesday that the "porting ratios" for the fourth quarter were very strong. "Porting ratios" are the number of customers joining T-Mobile versus those customers leaving it for other carriers. Compared to Verizon, T-Mobile says the ratio in the fourth quarter was 1.4 to 1.0. And compared to AT&T, the ratio was 1.8 to 1.0. The ratio compared to Sprint is 2.2 to 1.0.
Verizon's CEO Lowell McAdam acknowledged during a talk at an investor conference in Las Vegas on Tuesday that the company's churn rate -- or the rate at which people leave the service -- has gone up. But he said that even though Verizon may be losing some customers, it is still gaining and retaining high-value customers.
"Customers are moving back and forth," he said. "But we're very comfortable with the quality of the base of our customers." He added that the ARPUs (average revenue per user) are higher for the customers on Verizon's network than those leaving.
Still, T-Mobile's efforts to shake up the industry have had an effect on its larger competitors, which have changed some of their service plans and policies to match T-Mobile's Uncarrier efforts.
For example,it would allow customers to roll over data capacity from month to month. AT&T
While it's clear that T-Mobile's strategy has piqued the interest of consumers and has helped prompt competitors to react, the successful campaign to add new customers has come at a price. Specifically, the company's profits have lagged despite the positive customer growth. In the third quarter of 2014, T-Mobile reported a loss of 12 cents a share on revenue of $7.35 billion. This fell short of analyst expectations, which pegged revenues at $7.44 billion.
Still, Wall Street reacted positively to T-Mobile's strong subscriber growth for the fourth quarter, boosting its stock 1.77 percent to $27.34 a share in midday trading.
Speaking at an investor conference on Wednesday T-Mobile's chief financial officer Braxton Carter said the company will be cash flow positive in 2015 and will see revenue growth in the "double digits." Marketing chief Mike Sievert added that the company plans to continue shaking up the industry with its UnCarrier strategy and promotions.
As for T-Mobile's network, chief technology officer Neville Ray said the company is on track to reach 300 million potential customers with its 4G LTE network. He touted the company's strong spectrum position going into 2015. Even though T-Mobile is still in need of valuable low-band wireless spectrum, which allows signals to travel longer distances, he said the company is positioned well in what he calls "mid-band spectrum." It's this higher-frequency spectrum that he said AT&T, Verizon and others are pursuing in the FCC's current spectrum auction, which is nearing $45 billion in bids. This spectrum is valuable because it can be used for adding capacity to networks, particularly in urban areas where the density of customers is greater.
Ray said that T-Mobile has more spectrum per subscriber than either AT&T or Verizon and that it has committed four times the spectrum for 4G LTE services than Sprint offers today.
"We have a treasure trove of mid-band spectrum," he said. "And you can see from what is unfolding before your eyes (with the current auction) that this is a testament to our business."
Ray went on to say that the company will focus more on expanding its footprint for 4G LTE in 2015 rather than adding capacity as competitors, such as Verizon has promised to do.
"Our biggest goal is footprint expansion," he said. "From a capacity perspective, we've done that for 2015. And the other guys will have to catch up to us on that."
Update 11:32 am PT: This story was updated with quotes and information from the Citi Media Conference in Las Vegas.