T-Mobile's margins collapse in third quarter; carrier is now dead last among the four U.S. majors

T-Mobile's margins collapse in third quarter; carrier is now dead last among the four U.S. majors
For some time, T-Mobile has been the tail wagging the dog in the industry. And while cutting prices and offering free music streaming helps the carrier's pro-customer image, the company is doing this at a financial price. The economic version of "there is no such thing as a free lunch" means that there are costs to lowering prices and giving away free data.

If you take a look at the charts below, which were produced by Jackdaw Research analyst Jan Dawson, you can see how T-Mobile's focus on the consumer is impacting their business. In the first quarter of 2013, T-Mobile had a drop in wireless revenue for the period. It was the only one of the four major stateside mobile operators to report a lower top-line for that three month period. Move ahead to the third quarter of 2014, and T-Mobile is leading the way in wireless revenue growth, followed by Verizon, AT&T and Sprint.

But here is the cost. By giving away data for tablets and streaming music, and in trying to be the low-cost provider, T-Mobile has seen a sharp drop in its profit margins. From the first quarter of 2012, a period that saw the carrier enjoy EBITDA profit margins of about 26%, T-Mobile has seen its profit margins decline to under 10%. Verizon, as a comparison, enjoys an EBITDA profit margin above 40%. And even financially struggling Sprint has seen this metric recently show an uptrend.

T-Mobile CEO John Legere has constantly pointed out the high profit margins at Verizon and AT&T as a sign that their prices are too high. The outspoken executive has also made it clear that he is focusing on revenue now, expecting that T-Mobile's margins will improve over time. And Legere could be right on. We could see T-Mobile jump over Sprint some time this month, to become the nation's third largest carrier. On Tuesday, we told you that Sprint had lost 272,000 post-paid customers in its fiscal second quarter, and it plans on cutting 2000 jobs.

Legere's strategy is not without risk. Stockholders, after all, have to eat and they have a very short-term focus. Lower profits usually mean a lower stock price. But T-Mobile's shares have been propped up by the constant rumors of a takeover. These rumors are giving John Legere the luxury of time to implement his plan. It should be interesting to see what happens in the wireless industry over the next five years.


source: DawsonResearch via FierceWireless

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41 Comments

1. remixfa

Posts: 14605; Member since: Dec 19, 2008

It's also important to remember that Tmobile is rapidly expanding its network which will affect its final numbers greatly. It is a short term drop for a long term gain. The plan is to get the customers in the door and keep them with the ever improving service. Once the service is in place and customers get used to the low plan costs, they will stay and bring others. Once the expansion slows, the EBITA and margins will increase dramatically and they will be strengthened by all the new customers they gained a long the way. Spend a nickel now to make a dime later. It's something I've done before (on a MUCH smaller scale lolol) and it worked quite well. Tmo is on a roll, unless something dramatic actually happens, they will be very healthy in not too long of a time.

4. VZWuser76

Posts: 4974; Member since: Mar 04, 2010

While that plan will work for the majority of people, the rest who don't live anywhere near a major metro will be in the same boat as they are now. They may be expanding, but I doubt they'll ever be competing in rural or smaller urban areas, so they'll still need to rely on roaming on AT&T's network to shore up their coverage. I'm guessing during my lifetime, the only options I'll ever have is Verizon or AT&T.

5. Doakie

Posts: 2478; Member since: May 06, 2009

Did you know they're actively changing their EDGE network over to HSPA+? Which means their rural coverage will get much faster. I remember when I had them I was getting 25+ Mbps on their 42 Mbps HSPA+ network.

8. GenericFanboy

Posts: 50; Member since: Sep 05, 2014

You can get a data connection with tmo in a rural area? But really what good is high speeds if you barely have access to them?

10. SellPhones82

Posts: 569; Member since: Dec 11, 2008

I live on the southside of Indianapolis and did the 7 day trial about a month ago and T-Mobile coverage was horrible in a metro area! I had to be outside at work and home to get LTE. I'd either be "4G" or "E" at home and work. "E" is absolutely worthless and I could barley make calls on the phones. The best was when T-Mobile Care called me to see how my Test Drive was and I couldn't even make out what they were saying since the call kept breaking up. They kept telling me how I could get the wifi thing in my house, but then why would I pay them for cell service when it's really using my home broadband connection? The best LTE speed I got was 6 MB, which is worse that my Sprint service. I had a hard time even getting speed test to work on 4G, as it would fail the legacy tests. The kicker in all of this is when you search my address on their site it shows I'm in "Very Strong" coverage though that couldn't be farther from the truth. I think John is just really good at blowing smoke.

12. remixfa

Posts: 14605; Member since: Dec 19, 2008

yea.. with a name like "sellphones", me thinks you work in the industry and are just trolling to make another brand look bad. Nice try though.. someone out there totally believes you.

30. SellPhones82

Posts: 569; Member since: Dec 11, 2008

I have worked in the industry for almost 14 years. I mean I registered for this site even before you did! As a matter of fact, Voice Stream was the very first cell company I worked for. I don't think I need to tell you who they became as it will only hurt your argument. If I post all the screen shots I took while on my test drive will that make me more credible? The company I work for touches 1 out of 3 handsets in the US and T-Mobile is one of our biggest customers. I am simply providing my experience with T-Mobile. I also have text message from friends of mine that are on T-Mobile asking me what carrier they should go with as they are done with them and their crappy service in the Indy area. That's great if they work in your area. I really wished they did in mine, and glad I when the Test Drive route instead of the $30 Wal-Mart 100 Min Unlimited data plan. I even when as far as to order a sim converter kit so that I could try their service on my Nexus 5 instead of the iPhone 5S, but the speed and results were the same. Give me a sec and I'll post links to the speed tests. I provide facts instead of being an apologist.

42. mike2959

Posts: 697; Member since: Oct 08, 2011

You sir are exactly spot on. TMO has been, and still is the low cost, subpar service provider. Make no mistake about it. All the marketing will not change that. It's truly smoke and mirrors. Consumers will ALWAYS pay more for exceptional service. Exceptional service.

21. VZWuser76

Posts: 4974; Member since: Mar 04, 2010

Where I live in South Dakota, the nearest T-Mobile tower (not an AT&T tower that they roam off of) is 200 miles away, and it's the only tower in the state. Them switching from EDGE to HSPA doesn't help in that instance, because to get service with T-Mobile you live in an area covered by a tower they own, not one they roam off of.

40. lsutigers

Posts: 832; Member since: Mar 08, 2009

The problem is their rural edge coverage is practically nonexistent. There is very little rural coverage on TMO out there so even if they convert edge to LTE it won't help many. T-Mobile is a metro area and interstate carrier, they cannot compete with AT&T, Sprint and Verizon when it comes to coverage.

13. remixfa

Posts: 14605; Member since: Dec 19, 2008

You're guessing wrong. The difference between VZW's coverage map and Tmobiles coverage map is only like 2-3% of population coverage. VZW's strong point is rural areas, that's true, but a very small minority of people are stuck on VZW. And if you can get ATT, 99% chance you can get TMobile. They roam off of each other, its not a 1 way street. ATT's network is no bigger than Tmobiles.

22. VZWuser76

Posts: 4974; Member since: Mar 04, 2010

And like I said, I'm in the minorty. It may only be 2-3% of the population, but it's a LOT of area. In South Dakota, there is ONE T-Mobile tower in the state, in the southeast corner. Everything else is roaming off of AT&T. Do a search for T-Mobile home coverage, and even though it doesn't mean much when you can roam off of AT&T, to be able to get service with them is not an easy thing. Trust me, I've tried to find a way to get service with them, but was told they can't provide service to someone who lives in a roaming area.

25. PhoneAddiction

Posts: 79; Member since: Nov 07, 2012

Remixfa.. T-Mobile barely turns on in West VA. I work in DC and often have to travel through Western Maryland and WV to Ohio and I have absolutely no service. Verizon isn't much better in Western MD. Mostly 1x coverage. T-Mobile has just completely abandoned WV. Idk why, but if you try to port a 304 # or activate a new line with the prefix 304 at T-Mobile, they reject it. I have 3 of the major 4 carriers and I travel a bunch. AT&T seems to have the most consistent/reliable data coverage. Verizon, voice... But in DC, T-Mobile is the hands down best in terms of delivering voice an data. The speeds are blazing (outside of buildings) It's just a huge issue traveling up and down the east coast, unless you're going through a city or sub-urban area.

28. remixfa

Posts: 14605; Member since: Dec 19, 2008

everybody can find this area or that, but it still remains that they map by population, not by area. I did a trip from FL to GA, SC,NC,TN,WV,PA,MD and back down through home in FL and lost coverage with Tmobile only maybe 30 minutes the whole trip and most of that was in the creepiest backwoods part of GA.. looked like the scenes from the original Texas Chainsaw movie. Hell, I had 4g through all the mountain passes. This was like 3 years ago.

31. VZWuser76

Posts: 4974; Member since: Mar 04, 2010

Yes, you had service because of roaming. But to sign up to get service with T-Mobile, you have to be covered by one of their towers, not AT&T, T-Mobile's. Download an app called Cell Maps. On there, you can check which carrier's coverage you want to see, and can go even further by choosing 2G, 3G, 4G, 4GLTE, and roaming. Like I said earlier, this isn't a problem for most people, only the ones that don't live in a T-Mobile home area. So telling me you can get 4G all these places means nothing because they're roaming off of AT&T. If the roaming agreements weren't in place, their coverage would be as bad or worse than Sprint's without roaming agreements. You can tout T-Mobile until you're blue in the face, but the point is there are some people where it is absolutely not an option for them. I was told directly from T-Mobile that short of moving to an area with one of their home towers, they were not an option for me.

35. SellPhones82

Posts: 569; Member since: Dec 11, 2008

I think he had service he was in a car. Building/house penetration seems to be their bigger issue. I'll try them again once the 700 MHZ launches next year as it will cover most of central Indiana and fix the biggest problem I have with them.

41. lsutigers

Posts: 832; Member since: Mar 08, 2009

Dude T-Mobile is way behind the big 3 when it comes to coverage. Verizon covers a few more than 300 million POPs, AT&T and Sprint cover close to 300 million and TMO is just over 250 million. Look it up, its not even debatable.

36. Augustine

Posts: 1043; Member since: Sep 28, 2013

Rural coverage should improve in a few years as TMUS rolls out band 12 at 700MHz. For now, yeah, it sucks, even with the upgrade from 2G to LTE, which remains sparse.

2. realhumanbeing

Posts: 53; Member since: Oct 18, 2014

Still have hope in them, T-mobile is great.

20. torr310

Posts: 1692; Member since: Oct 27, 2011

I wish to switch to T-Mobile after my Verizon contract is up. As you see, both Verizon and ATT have the highest margin and their services are not on par with the price. I live in Los Angeles and I still experience dead spot and slow connection frequently.

3. bugsbunny00

Posts: 2267; Member since: Jun 07, 2013

keep it up tmo..

6. cripton805

Posts: 1485; Member since: Mar 18, 2012

In this case higher profits = less revenue / customers He went for volume. It worked. If Sprint would compete with Tmobile pricing they may be able to compete. Their pricing is still too high. It makes no sense to use Sprint.

11. SellPhones82

Posts: 569; Member since: Dec 11, 2008

So $60 for unlimited everything is still too high? Or better yet, $50 for unlimited everything on an iPhone? Isn't T-Mobile $80 for unlimited everything? Pretty sure Sprint beats their pricing. Even the $50 plan for T-Mobile is only 1GB of LTE and I know you still get 4G, but as I mentioned in my post above, that is worthless in my area.

16. bestmvno

Posts: 251; Member since: Mar 07, 2014

T-Mobile has a $45 plan with 2 GB of LTE with unlimited talk and text. They also have a $30 prepaid unlimited data plan that includes 5 GB of LTE with 100 minutes talk. I like what Sprint is doing with their pricing, but if you read the fine print, other Sprint customers get network priority in times of heavy traffic, so you can be throttled on those particular Sprint plans.

27. JayFiveAlive

Posts: 67; Member since: May 30, 2014

Unfortunately, even Sprint admits their unlimited data is not actually unlimited anymore. They say you will be throttled if you go above an amount, I believe it was 5 or 7GB. :( If they are fast in your area and T-Mo sucks in your area, by all means go for Sprint. I had Sprint 6 months ago with "unlimited data" and I was hardly ever able to get more than 1GB of data used if I tried my hardest because their network was so godawful slow, even with Spark. T-Mobile in my area is so much faster that I have actually almost hit my 3GB cap every month lol. I had to turn my Google Music streaming quality down to Normal instead of High... I could not even stream Google Music with Sprint on Normal, sadly :(

32. SellPhones82

Posts: 569; Member since: Dec 11, 2008

Yeah, you and I just have the opposite coverage from the 2. I've read/heard the same things about them throttling, but have yet to see it. I use 6-8 GB every month without issue. Google music is normally 2GB of that. I loaded the L preview on my phone on 10-20 and as of today have already used 4.5 GB. Rom's and anything else I download are still faster than if I connect to my AT&T wifi at my house My cousin would use around 15 GB a month as he used his phone as his internet connection at home before he moved out to Cali. Even he was never throttled so I guess 15 GB doesn't even put you in the top 5 percent!

46. lsutigers

Posts: 832; Member since: Mar 08, 2009

Depends where you're located, as Sprint has been adding 2 additional bands of LTE 800mhz Nextel for in building coverage and 2.5ghz Clearwire for speed and capacity. The 800mhz Nextel deployment is ongoing nationwide, the 2.5ghz deployment is part of Spark and is currently at 92million POPs of coverage and 100 million by year end. As these additional bands come online, load is distributed off the 1900mhz PCS spectrum and onto the other 2 bands which increaes speeds. I have traveled to many Spark markets within the last 6 months and the speeds are fast. On par with Verizon's XLTE.

43. elitewolverine

Posts: 5192; Member since: Oct 28, 2013

Unlimited...problem is I tether. at least 4-5gb a month. I just went through sprints plans online. It would be 50 for the plan and another 50 to match what I tether. I would pay 100 just for service instead of 80 on tmobile

44. cripton805

Posts: 1485; Member since: Mar 18, 2012

Tmobile has way better family plans. I dont know if they have changed yet, but the last time I checked, it was $110 for five smartphone lines. After the 3rd phone, it was only $10/line. Even if they did throttle after 1gb. Thats still a steal considering its still unlimited. Throttled data may be slow, but its still usable for emails, web pages, social network, etc...

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