On Nov 30, we issued an updated research report on T-Mobile US, Inc. TMUS.
T-Mobile reported disappointing financial results in the third quarter of 2015 with both the top and the bottom line significantly lagging the Zacks Consensus Estimate.
However, despite stiff competition, the company’s unique “Un-Carrier” business model has gained commendable popularity, helping it gain a large number of customers.
Thus, owing to the success of its Simple Choice plan and continued evolution of the Un-carrier strategy, the company now expects branded postpaid net customer additions between 3.8–4.2 million in 2015, reflecting an increase from the previous guidance of 3.4–3.9 million. Interestingly, this is the third time that management has raised its full-year 2015 forecast for customer gains. Notably, as of Sep 30, 2015, the total customer base of T-Mobile stood at 61.22 million, up 15.7% year over year.
Having caught up with Sprint Corp. S in terms of subscriber gain, T-Mobile is leaving no stone unturned to attract the former’s customers and maintain its third highest position in the U.S. wireless industry.
The carrier has announced a new promotion for Sprint customers entailing a substantial $200 credit per line offering, for switching to T-Mobile’s wireless service. Notably, the credit is in addition to the $650 per line that T-Mobile is paying as termination fees to those who switch. Meanwhile, the offer is available for a limited period and doesn't require customers to trade in their old devices.
Moreover, the company recently fired up competition in the U.S. wireless market by allowing customers to stream videos on mobile devices for free. The ‘Binge On’ service, as touted by the company, will provide access to 24 streaming services. The carrier plans to further pep up video streaming services for customers, going forward.
Meanwhile, this September, the company introduced its iPhone plan – ‘Jump on Demand’ – offering subscribers the latest iPhone 6s for as low as $5 per month, to be paid over a period of 18 months.
Additionally, T-Mobile has been continuously launching low-priced service plans for individual consumers as well as business entities. We believe such low-cost plans will lure subscribers to T-Mobile from its competitors, particularly those who are cost-sensitive. However, offering discounted prices may dent the company’s margins, going forward.
Moreover, the U.S. wireless market is highly price sensitive. In the near future, T-Mobile will likely face cut-throat pricing competition from peers like Verizon Communications Inc. VZ, AT&T, Inc. T and Sprint.
Also, management’s strategy of introducing several promotional offers like free music streaming, free video offer and price cuts on service plans and recent adoption of phone leasing plans where equipment revenue is not booked upfront creates a margin squeeze for the company.
T-Mobile currently has a Zacks Rank #3 (Hold).
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