With 2.1M new subscribers, T-Mobile dominated U.S. smartphone growth in Q2. Whether you like him or not, John Legere's plan is working.
What happens when you combine a bombastic CEO with a marketing strategy that ruthlessly attacks its competitors? Apparently, it’s 2.1 million new customers.
On Thursday T-Mobile US reported 2nd quarter net subscriber additions of 2.1 million, bringing its total number of connections to 58.9 million. The company managed to lure more than 1 million subscribers to its networks for nine straight quarters. In three of the last four quarters its customer ranks grew by more than 2 million—strong evidence that its aggressive Uncarrier campaign is still working its charms.
T-Mobile TMUS has long been the smallest of the four nationwide carriers, but in the last two years its outspoken and media-savvy CEO John Legere has orchestrated a huge turnaround, largely by shaking up the mobile industry. Promotions like T-Mobile’s Jump phone upgrade programs and its Music Freedom service, which exempts audio streaming from customers data plans, have put its larger competitors on the defensive. In the last year T-Mobile has been in a race to overtake Sprint S , which will post its earnings on Tuesday/Although, unless Sprint has exceptional customer growth to report, T-Mobile will likely become the third largest U.S. operator.
T-Mobile’s subscriber growth helped it garner Q2 profits of $361 million (or 42 cents a share) off of $8.2 billion in revenue, which increased 14% year-over-year.
Depending on how you look at it, T-Mobile either owes its success to—or in spite of—its fiery CEO John Legere, who’s profanity-laced tirades against the competition on Twitter and in media interviews have become legendary. At T-Mobile’s earnings call this morning, Legere kept the four-letter words to a minimum, but even as he highlighted new features and campaigns he ridiculed AT&T T and Verizon’s—which Legere calls “dumb” and “dumber”—attempts to counter to them.
For instance, when T-Mobile earlier this month introduced its Mobile Without Borders program, which essentially extends most T-Mobile calling and data plans to Mexico and Canada at no additional cost, Verizon VZ responded with its own $5 per month international calling add-on plan, which Legere dismissed as “lame. They make my job too easy,” Legere said of T-Mobile’s competitors. “I appreciate that. Keep it up.”
While 2.1 million net subscriber additions is certainly impressive, not all mobile subscriptions are created equally, though. If you break down T-Mobile’s numbers we see a 886,000 wholesale connections from virtual carriers like Ultra Mobile and Google’s Project Fi that buy network capacity from T-Mobile at much lower rates than a retail customer would pay. Of its 1.86 million retail net additions, 178,000 were MetroPCS prepaid subscribers as well as 248,000 tablet and data modem connections, two categories that trend toward the lower end of the spending spectrum.
The key number to focus in on is 760,000, the number of postpaid phone subscribers T-Mobile added in the second quarter. They represent high-value smartphone connections—subscribers signing up for T-Mobile’s core voice and data plans—and they’re the most difficult kind of subscriptions to acquire. In an age where practically everyone already has a phone, the only way to grow your smartphone base is to steal customers away from the competition. In that area, T-Mobile excelled.
While both AT&T and Verizon had comparable quarters to T-Mobile in overall customer growth, T-Mobile walloped them when it came to postpaid phones. Of AT&T’s 2.1 million additions, 1.4 million were Internet-of-things connections, mainly supplying the links to automakers GM, Audi and Tesla’s telematics systems. Meanwhile Ma Bell actually lost 410,000 postpaid phone subscribers in the quarter (many of whom likely wound up at T-Mobile). Verizon grew its postpaid phone ranks by 321,000, but most of its success throughout the quarter came from connecting tablets, not phones.
Still, T-Mobile’s weaknesses stood out right alongside its strengths. While those Internet-of-things and tablet connections may not bring in the same revenue as smartphone plans, they’re also big growth areas, which Verizon and AT&T are taking full advantage of while T-Mobile scraps it out for phone subscribers. On tablets, in particular, T-Mobile has failed to make any sizable dent in the market, and it actually shed Internet-of-things connections in Q2.
T-Mobile’s feistiness also extends to its customers, which have a higher turnover rate than customers from other operators. T-Mobile’s postpaid churn rate—the percentage of customers who leave for greener pastures every quarter—was 1.32%, compared to 1.01% for AT&T and 0.9% for Verizon.
T-Mobile, however, has started fixing what many consider its biggest weakness: coverage. The knock on T-Mobile is that it works great when you’re in the big cities, but in the vast spaces in between your signal goes to pot. The operator has started building new LTE networks in the 700 MHz band, which will propagate signals much further than its other 4G networks, to fill in those gaps as well as provide better in-building coverage. Legere said T-Mobile networks will cover 300 million people in the U.S. by year’s end.
It’s been more than two years since Legere introduced the country to a rejuvenated version of T-Mobile, but the Uncarrier shows few signs of slowing down. Since the end of second quarter, T-Mobile has already introduced two new programs intended to keep the competition on its toes: Mobile Without Borders and Jump! On Demand, an upgrade program that lets customers trade in their phones for newer models at any time.
T-Mobile has to falter at some point though. There’s no way it can keep up its growth through postpaid smartphone plans alone. You can bet Verizon, AT&T and Sprint are waiting for that day, if only to get John Legere to shut up.