T-Mobile USA faces stiff competition

Correction, 4:03 p.m. PST: This story misstated the day the company announced subscriber figures. It was Thursday.

Competition is heating up in the wireless market and it looks like T-Mobile USA is getting singed.

Deutsche Telekom, which owns the wireless company T-Mobile International and T-Mobile USA, reported earnings on Thursday citing slower subscriber growth for its U.S. wireless entity.

During the fourth quarter, T-Mobile USA, which is the fourth largest wireless operator in the U.S., added 621,000 new customers. This was down from the previous quarter when the company added 670,000 new subscribers. And it was down considerably from a year earlier when it added 951,000 subscribers in the fourth quarter of 2007.

The bulk of new subscribers came from pre-paid accounts, as the total number of customers signing up for contracts slowed compared to previous quarters. In the fourth quarter, T-Mobile USA added 267,000 contract customers, down from 733,000 contract customers a year ago. Even during the third quarter of 2008, the company managed to add 293,000 post-paid customers.

That said, T-Mobile saw an increase in prepaid subscribers as it added 355,000 of these customers in the third quarter, up from 218,000 in the fourth quarter of 2007. It added 377,000 prepaid accounts in the third quarter of 2008.

The strength of the prepaid market could be attributed to the deepening U.S. recession and stronger competition among the nation's largest wireless companies. While consumers are not getting rid of their cell phone service, some subscribers are looking for cheaper alternatives.

Based on results from AT&T and Verizon Wireless, it appears that customers looking for higher-end smartphones are gravitating toward the two biggest carriers rather than T-Mobile, which is often seen as a value player in the market.

T-Mobile has launched its 3G wireless network and it also offers the only Google Android phone on the market, the G1. It also sold the Samsung Behold during the quarter. Smartphone sales helped boost T-Mobile's contract subscriptions, accounting for 40 percent of the devices sold to contract customers in the fourth quarter.

But it appears that smartphone customers looking for a 3G network are going with AT&T and Verizon, which have larger 3G footprints and a wider variety of smartphones.

Denny Strigl, chief operating officer for Verizon, noted on the company's conference call Tuesday that 37 percent of new devices sold during the quarter were smartphones. Verizon added 1.4 million new subscribers during the fourth quarter of 2008. Adding customers from the Alltel merger, Verizon now has more than 80 million wireless customers.

During the fourth quarter, AT&T added 2.1 million new subscribers, including 1.9 million new iPhone users. AT&T now has a total of 77 million wireless subscribers, an increase of 7 million subscribers for the year. The company increased its "postpaid" (as opposed to prepaid) customers by 13.9 percent versus the same quarter last year.

Meanwhile, T-Mobile reported that its churn, or the rate at which customers dump its service, was 2.4 percent in the fourth quarter of 2008, consistent with rates from the previous quarter, but up from 1.8 percent the same quarter a year ago.

Sprint Nextel, the nation's third largest wireless operator, reports earnings next month.