Colorful CEO John Legere lifts T-Mobile’s reputation, customer base

29 Oct 2014 | Author: | No comments yet »

Apple’s phablet gamble pays off: T-Mobile reports sales of the iPhone 6 Plus are DOUBLE what the firm expected.

When John Legere vowed to make big changes at T-Mobile, he started with himself: He grew his hair into a shaggy mane, traded in his suit and tie for a hot pink wardrobe and silver fang necklace, and unleashed a loudmouth attitude never before seen in the staid world of wireless carriers. “The concept really was, from Day 1, not just to survive but to go all the way,” Legere told The Times recently, a small doll made in his likeness nestled on his lap and a Batman ring on his finger. “We had to change this culture unbelievably to something that stands for who we are.” Ranking fourth biggest on the list of the Big Four wireless carriers in the U.S. gives Legere some creative latitude — there’s less to lose. Bellevue-based T-Mobile US, the country’s fourth-largest wireless carrier, outpaced its two biggest competitors in net customer additions this quarter, but it came at a price.Shares of T-Mobile US (TMUS) are up 45 cents, or 1.6%, at $28.44, after the company yesterday missed Q3 revenue and profit estimates, but picked up more postpaid subscribers than the Street expected, and reiterated its profit view for the full year.

Despite reports Apple’s iPhone 6 Plus bends in a pocket, and critics claiming its a carbon-copy of Samsung devices – its popularity hasn’t been dented. The company added 2.3 million net customers from July to September, 1.2 million of which were postpaid phone users — considered the most lucrative customers in the telecom industry. The company’s 1.4 million in net additions of postpaid subscribers was higher than the 785,000 that AT&T (T) reported last week, and not far from the 1.52 million that Verizon Communications (VZ) reported the same week.

T-Mobile boss chief executive John Legere has revealed that the larger, phablet device is ‘exceeding expectations’ – and is on par with the smaller iPhone 6 model. He speaks with Bloomberg’s Emily Chang on “Bloomberg West.” (Source: Bloomberg) Taking a look at your last two years as ceo, you have added 3 million subscribers, up 50%. when you took this job which you knew was going to be difficult, what were your own expectations as to where you would be at this point and how satisfied are you? The new iPhones were seen as a particularly big upgrade, all four carriers were planning major launches for the first time, and it is now easier than ever for customers to switch carriers without facing a financial penalty. A Piper Jaffray survey found the larger model was outselling the smaller version, and analyst Gene Munster said at the time the Plus was ‘more popular’.

He tackled its business model by lowering prices, scrapping standard two-year contracts, paying early-termination fees for T-Mobile converts and unbundling smartphone prices from the cost of a service plan. From the day came and i had extremely high expectations for this company namely because i saw the brand and i saw the people and i saw the competition as inept as they are and i knew there was a great possibility for the business. T-Mobile also boosted its full-year outlook for postpaid additions to a range of 4.3 million to 4.7 million from a prior range of 3 million to 3.5 million.

Both models include the Apple-designed A8 chip with second generation 64-bit desktop-class architecture, said to boost performance and power efficiency. This is 2.3 5 million net adds, 1.8 million branded net adds and service revenue is also up 10.6% year-over-year and you use the word by aggressive price measures. We certainly had a great quarter but i can tell you, it continued right into october and we maintained as you see by our guidance keeping our guidance and raising the postpaid subscriber number 24.7 which is — has annihilated the industry and we are happy about that. As related by Fried’s colleague Dawn Chmielewski, Legere boasted T-Mobile is “kicking the shit out of industry.” She notes T-Mobile has added 20 million subscribers, though, mind you, that includes the acquisition of MetroPCs last year. T-Mobile’s media events have become forums for Legere to take potshots at his rivals; he has continued the trash talking on Twitter, where he has attracted 642,000 followers.

To go from the beginning of the year with two to 3 million postpaid subscribers and now 3.4 to 4.7 and maintain affability and a good cache profile, that pays back hugely especially when the churn is at all-time lows for the company. Cowen & Co.’s Colby Synesael, reiterating an Outperform rating, and a $45 price target, writes that the net additions were “significantly stronger” than expected.

The biggest haul came from Sprint (S), the second member of the wireless industry’s junior varsity tier, which sent 2.5 customers to T-Mobile for each T-Mobile convert it won. The firm also found that the iPhone 6 is being adopted at twice the rate of its iPhone 5S predecessor – which had a 3 per cent share of all iPhones at this time last year. Legere “realized there was an appetite for something different,” said Rich Karpinski, a telecom analyst at 451 Research. “That attitude more than anything else is what people have responded to.

You mentioned some of the ones that popped up externally that the best way to think about it is is there possibility to create greater shareholder value by expanding on the value chain or looking at other ways to use our capability and brand and distribution, possibly with some others. Interestingly, as an example, the company also stated at the re/code conference last night that 93% of customers porting from Verizon were previous postpaid customers and 77% of customers coming from Verizon were Prime.

The only reason for modesty around the iPhone launch, he said, was the expectation that T-Mobile would continue to have trouble keeping the iPhone in stock through November. Following the launch in September, Apple reported it sold more than 10 million iPhone 6 and 6 Plus models over the first weekend – a three-day record for a new model.

There’s a cult of personality in tech that had never been there in telecom and that’s something he figured out.” So far it’s paying off, with a ballooning subscriber base, higher revenue and growing market share. In the short term, all we know is that we can sustain a very profitable shareholder value creating future standalone and there are a number of options including the ones you have talked about that we will continue to look at and see how shareholders think about them. Kevin Smithen, an analyst with the Macquarie Group, wrote in a research note that T-Mobile’s net adds for the third quarter — a quarter that is usually seasonally weak — shows the power of its brand. While some may point to the competitive landscape, T-Mobile highlighted stronger porting ratios versus AT&T/Verizon in October, but acknowledged some improvement from a rejuvenated Sprint (though still heavily in TMUS’ favor). We view the revised guidance as conservative and believe the pacing of LTE deployments provides continued headroom for further opportunity beyond share gains in existing markets.

Despite all the new customers, T-Mobile remains in the No. 4 spot (it is poised to overtake Sprint for third place by year’s end) and still has only about half the subscriber base of Verizon and AT&T. During the second quarter T-Mobile recognized $747 million in revenue from previous spectrum sales, which accounted for the company’s posted profit. McCormack notes the fact the company maintained its outlook means its work integrating last year’s purchase of MetroPCS appears to be a year or more ahead of schedule: Updated 2014 EBITDA guidance of the low-end of the existing $5.6 to $5.8bn range is in-line with our prior expectations, and implies a material improvement into 4Q of ~$1.7bn vs. our $1.6bn forecast.

Third-quarter revenue was lower than Wall Street estimates, and, in part because of heavy spending to attract new customers, the company swung to a loss of 12 cents a share. We believe that the improvement will likely be driven by synergies from MetroPCS market shutdowns, as cost synergies from such shutdowns typically lag by about 90 days. In an industry where size matters, analysts said ideally T-Mobile would further grow its footprint by merging with or acquiring another carrier, although that may be difficult. Furthermore, with 78% of MetroPCS subscribers already on the T-Mobile network, and high 4Q/1Q prepaid device upgrade seasonality, it is possible that synergies are running 9-12 months ahead of the initial integration timeline.

The upstart carrier has made sacrifices to win the legions of converts, and Legere is fighting against the assumption that T-Mobile and Sprint are basically doing the same thing: undercutting bigger competitors on price. Jennifer Fritzsche with Wells Fargo, reiterating a Market Perform rating, worries that T-Mobile’s current lead on the other three in terms of subs cannot last: TMUS continues to show solid growth vs. its competitors.

That has been Sprint’s explicit strategy, and it’s probably necessary because the company openly admits that its network lags behind those of AT&T and Verizon. T-Mobile has also sacrificed revenue in aggressive pursuit of customers, but when he talks to investors Legere insists at length that T-Mobile is charging customers more than ever. That’s a slightly awkward position for a man who has tailored his public persona as the foul-mouthed voice of the common man fighting against faceless phone companies. Based on the EBITDA shortfall (recall we had already lowered our estimate in October) TMUS is clearly paying a price for some of this growth – even with relatively low subsidy pressure.

A longtime telecommunications executive, Legere, 56, led Global Crossing for a decade as CEO and guided the telecom company through bankruptcy before it was acquired by Level 3 in 2011. Sprint’s network, he said, “really blows.” A recent Verizon promotion was “trickery at its finest.” AT&T is “brainwashing” consumers with its “crock” pricing plans. He got in a dig at the Amazon Fire smartphone, calling it “the Fire sale phone,” heckled reporters and joked about teenage boys burning up bandwidth to watch pornography. I told him I thought he looked better when he was fat, and I felt a little bit bad about that.” “Yeah, he was huge!” Legere said, eliciting a roar of laughter from a group of T-Mobile executives.

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