T-Mobile swings to Q4 profit as customer growth zooms along

The wireless carrier expects the momentum to continue into 2015, but it will have to reckon with the costs of its Data Stash program.

Roger Cheng Former Executive Editor / Head of News
Roger Cheng (he/him/his) was the executive editor in charge of CNET News, managing everything from daily breaking news to in-depth investigative packages. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade and got his start writing and laying out pages at a local paper in Southern California. He's a devoted Trojan alum and thinks sleep is the perfect -- if unattainable -- hobby for a parent.
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Roger Cheng
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T-Mobile CEO John Legere had a lot to celebrate at the end of 2014. Screenshot by Claudia Cruz/CNET

T-Mobile ended the year on a high note.

For the fourth quarter, the nation's fourth-largest wireless carrier posted a profit of $101 million, or 12 cents a share, reversing a year-ago loss of $20 million, or 3 cents a share. Revenue rose nearly 20 percent to $8.15 billion. The results topped analysts' expectations of earnings of 5 cents a share and revenue of $7.89 billion, according to a survey taken by Thomson Reuters.

T-Mobile remained active at $31 in premarket trading Thursday.

That T-Mobile continued to hum along is impressive given seemingly endless promotional activity that went on during the holiday period. The competition caused rivals such as Verizon and AT&T to see an increase in their customer turnover rates, underscoring the harsh environment for carriers as consumers seek out the best deals.

"2014 was the best year of growth in company history," T-Mobile CEO John Legere said in a statement Thursday. "Our Un-carrier moves helped us blow away the competition. The best is yet to come as the future looks bright in 2015."

While T-Mobile has shown it can add customers -- this was the seventh quarter in a row in which it added more than 1 million net new customers -- the bigger question has been whether it can do so and still maintain a profit. Critics believe T-Mobile's aggressive tactics to win over customers under the Uncarrier banner aren't financially sustainable, and the bigger test going into 2015 is when the carrier will begin to deliver consistent earnings.

T-Mobile added 2.1 million net new customers in the fourth quarter. More importantly, it added 1.3 million customers who pay at the end of the month, so-called postpaid subscribers who tend to spend more and stay with the carrier longer.

The company sees its Uncarrier movement continuing into 2015, although with a bit of a slowdown. It projected adding between 2.2 million to 3.2 million postpaid customers in 2015, down from the 4 million customers it added last year, but ahead of J.P. Morgan analyst Philip Cusick's estimate.

And the company also said it expects to posted adjusted earnings before interest, taxes, depreciation and amortization of $6.8 billion to $7.2 billion, up from $5.6 billion in 2014.

The promotional programs are spilling into this year. In December, T-Mobile introduced a data rollover program called Data Stash, allowing consumers to keep their unused data into the next billing cycle. AT&T followed suit with its own rollover program in January. Sprint CEO Marcelo Claure, meanwhile, said that he would keep his company's "Cut your rate plan in half" promotion going throughout the year.

Data Stash will have a financial impact on T-Mobile, the company warned. It will take a noncash charge of $100 million to $150 million charge to account for the distribution of 10 gigabytes of data to customers who sign up for the program, although the company said the impact would reverse itself during 2015.

The competition did cause T-Mobile's customer turnover rate to tick up a bit, up 10 basis points to 1.7 percent over a year ago. AT&T and Verizon likewise suffered from rising turnover amid the spate of promotions available to consumers.

T-Mobile is also racing to catch up to the network coverage boasted by AT&T and Verizon. While the carrier boasts the nation's fastest network, much of its strength lies in the major metropolitan markets. That was illustrated by results of a broad wireless test released earlier this month that found T-Mobile ranked fourth in overall performance -- behind languishing Sprint.

Legere dismissed those results, calling the test outdated and skewed by areas with fewer customers. T-Mobile's 4G LTE network covered 265 million people by the end of 2014, and is targeting 300 million people this year. The company is deploying "low-band" 700MHz spectrum that it acquired from Verizon, while it has just acquired $1.4 billion worth of spectrum licenses in the Federal Communications Commission auction that ended earlier this year.