T-Mobile backs up bluster in Q1, corners Sprint

The race is on to be the No. 3 wireless carrier in the US and it appears that No. 4, T-Mobile, has the momentum even as Sprint ponders a bid for its rival.

There are ongoing reports that Sprint may be seeking funding to acquire T-Mobile. Sprint better hurry up or it'll be the No. 4 wireless carrier.

T-Mobile's first quarter earnings report illustrates a tale of the tape that has Sprint sweating. Bloomberg reports that Sprint is making debt arrangements to buy T-Mobile. Aside from the obvious regulatory concerns, there's a short window for Sprint to move.

Since nearly every consumer and business is touched by one of the four large carriers in the US, it's worth noting when a power shift between No. 3 and No. 4 is about to happen.

T-Mobile CEO John Legere was doing a bit of chest thumping on the company's earnings conference call. He said:

While the competition has been busy reacting to us and imitating our moves, we've been rolling out new initiatives and I feel great about them. We have significantly raised our branded postpaid net adds guidance to 2.8 to 3.3 million. I stated before we would hit the high end of our original guidance. We're not only doing that we're raising it further.

Contrary to prior belief, the wireless industry continued to grow in Q1. You now see that T-Mobile captured virtually all of the industry phone growth while successfully taking market share from competitors.

T-Mobile CEO John Legere

Consider the following:

  • T-Mobile ended the first quarter with 49.1 million customers, up 2.4 million from the fourth quarter. Postpaid net adds were 1.3 million. In other words, T-Mobile has utilized the MetroPCS acquisition and uncarrier plans and marketing to gain momentum.
  • Sprint lost 231,000 postpaid subscribers in the first quarter and 383,000 overall. Sprint had 53.55 million subs.
  • T-Mobile's postpaid churn was 1.5 percent in the first quarter. Sprint's postpaid churn was 2.18 percent (2.11 percent just for the Sprint platform). Verizon's retail postpaid churn was 1.07 percent and AT&T matched that mark.
  • Both rivals are competing for value customers and underdogs against Verizon, which had 103.3 million retail connections and 97.3 million postpaid, and AT&T, which has 116 million wireless subscribers including 4.5 million from the Leap Wireless acquisition.
  • T-Mobile and Sprint lose money on a net basis. T-Mobile lost $151 million on revenue of $6.87 billion in the first quarter. Sprint coincidently also had a net loss of $151 million on revenue of $8.87 billion.
  • T-Mobile expects to add 2.8 million to 3.3 million net postpaid subscribers in 2014 and plans to take some of those customers from Sprint.
  • Neither wireless carrier has a large enterprise business so the future is all about consumer marketing and scale.
  • Given those moving parts, Sprint has to line up the debt financing to make a bid for T-Mobile. It's unclear who would run the joint operation, but Bloomberg reported that T-Mobile CEO John Legere is a likely candidate.

If T-Mobile and Sprint were to combine, there's a three-horse race. The risk for Sprint is that if it doesn't make a bid soon it'll be the prey instead of the hunter. T-Mobile's uncarrier shtick appears to be working and Sprint is collateral damage.