T-Mobile prepaid helps growth, hurts revenues

T-Mobile USA redeemed itself from a lousy third quarter in which it lost 77,000 subscribers by adding 371,000 new customers in the quarter past. In parent company Deutsche Telekom’s (NYSE:DT) fourth-quarter earnings, the fourth-largest US carrier noted that the growth came entirely from the company’s prepaid and wholesale operations, making up for the 117,000 customers it lost on the struggling post-paid side of its business.

The customer additions were good for T-Mobile, which introduced new lower rate plans for its contract-free service in the quarter, but the lower-paying consumers ultimately hurt its revenues. The carrier said that contract customers spent an average of $51 per month in Q4, whereas prepaid customers spent only $18 per month – both of which is less than was spent in the same quarter last year. In total, T-Mobile's service revenue declined to $4.65 billion in Q4.

The carrier lost 117,000 contract customers in the quarter, an improvement over Q3, but a significant drop year-over-year. In Q4 2008, it added a total of 267,000 contract customers. Wholesale customer additions were two million in Q4.

According to T-Mobile, more consumers are also adopting 3G data plans, stimulated by the rise of 3G-capable smartphones and its network expansion. This has driven its revenue growth on the data front, as has a consumer migration away from usage-based messaging plans towards unlimited plans. T-Mobile’s customers sent more than 77 billion text messages in Q4, a rise from previous quarters.

For the year as a whole, T-Mobile saw a 1.6% decline in revenue in the face of heightened prepaid competition. At the same time, T-Mobile managed to add one million new customers throughout the year, bringing its total to 33.8 million. At the end of the year, prepaid users accounted for 21% of its customer base, an increase from 18% at the end of 2008.

T-Mobile’s growth continues to lag its larger competitors, AT&T, Verizon Wireless and even Sprint, which is losing customers. But, it is working on growing its advanced 3G network to increase its competitiveness. T-Mobile announced its first HSPA+ device, a laptop 3G dongle, at Mobile World Congress last week. The high-speed packet access + technology triples T-Mobile’s current network speeds to a maximum of 21 Mb/s, faster than AT&T and VZW’s current 3G networks, although less so than 4G technologies. The network upgrade is slated to be complete by the end of 2010. HSPA+ is currently available in its test market, Philadelphia, but T-Mobile said it was able to stick to its lower-speed HSPA build-out targets for the year, covering 205 million subscribers in the US. Its 3G HSPA network supports data transmission rates of up to 7.2 Mb/s.