T-Mobile USA Reports Fourth Quarter and Full Year 2007 Results

T-Mobile USA, Inc. (T-Mobile USA) today reported fourth quarter and full year 2007 results. At the end of the quarter, the company had 28.7 million customers, adding more than 951,000 net new customers during the fourth quarter, OIBDA of $1.33 billion, up 13.2% compared to the fourth quarter of 2006, and a reduction in contract customer churn to 1.8% from 2.1% in the fourth quarter of 2006. "T-Mobile continues to drive strong year-over-year growth by pioneering innovation that matters to consumers,” said Robert Dotson, CEO and President, T-Mobile USA. "In 2007, we increased growth to more than 3.6 million net new customers. myFavesSM was a major contributor, with 5 million customers at year-end using the service to enjoy truly affordable unlimited calling features along with one-touch access to their Faves. Our new FlexPaySM plans also debuted in 2007, driving smart financials and new growth by opening up access to more attractive offerings for a broader base of customers. Finally, with the successful completion of our SunCom acquisition, we also look forward to bringing our services to new customers in both the Carolinas and in Puerto Rico.” "T-Mobile USA continues to deliver very strong results,” said René Obermann, Chief Executive Officer, Deutsche Telekom. "Year on year double digit growth in both service revenues and OIBDA show how T-Mobile USA is helping Deutsche Telekom deliver on its strategy to grow abroad with mobile.” Customers In the fourth quarter of 2007, T-Mobile USA added 951,000 net new customers, up from 857,000 in the third quarter of 2007, and 901,000 in the fourth quarter of 2006.           -- Contract customer net additions in the fourth quarter of 2007 made up 77% of customer growth, up from 65% in the third quarter of 2007, and down from 87% in the fourth quarter of 2006.   -- myFaves continues to be very popular with our customers. At the end of the fourth quarter there were 5.0 million myFaves customers, up from 3.5 million at the end of the third quarter. Contract customers comprised 83% of T-Mobile USA’s total customer base at December 31, 2007. Churn Contract customer churn was 1.8% in the fourth quarter of 2007, down from 2.0% in the third quarter of 2007 and 2.1% in the fourth quarter of 2006. The year over year decline in churn is primarily due to the introduction of two-year contracts in the second quarter of 2006. Blended churn, including both contract and prepaid customers, was 2.8% in the fourth quarter of 2007, down from 2.9% in both the third quarter of 2007 and the fourth quarter of 2006. OIBDA and Net Income T-Mobile USA reported OIBDA of $1.33 billion in the fourth quarter of 2007, down from $1.41 billion in the third quarter of 2007 and up from $1.17 billion in the fourth quarter of 2006.           -- The sequential decrease in OIBDA was primarily due to higher customer acquisition costs in the fourth quarter of 2007. OIBDA margin was 30% in the fourth quarter of 2007, down from 32% in the third quarter of 2007, and the same as in the fourth quarter of 2006. Net income for the fourth quarter of 2007 was $383 million, down from $526 million in the third quarter of 2007 and up from $179 million in the fourth quarter of 2006. Revenue Service revenues, consisting of contract, prepaid, and roaming and other service revenues, rose to $4.37 billion in the fourth quarter of 2007, up slightly from $4.33 billion in the third quarter of 2007, and up from $3.81 billion in the fourth quarter of 2006.           -- The increase in service revenues year on year was primarily due to the growth in contract customers. Other revenues were $77 million in the fourth quarter of 2007, down from $82 million in the third quarter of 2007 and $122 million in the fourth quarter of 2006.           -- The major reason for the year on year fall in other revenues was the ongoing migration of AT&T's customers to its own network following the dissolution of our network sharing venture in early 2005.   -- In 2007, Wi-Fi revenues were reclassified to contract revenues and roaming and other service revenues (see note 9 to the Selected Data below for further explanation). Total revenues, including service, equipment, and other revenues were $5.07 billion in the fourth quarter of 2007, up from $4.89 billion in the third quarter of 2007 and $4.52 billion in the fourth quarter of 2006. ARPU Blended Average Revenue Per User ("ARPU” as defined in note 1 to the Selected Data, below) was $52 in the fourth quarter of 2007, down from $53 in the third quarter of 2007 and the same as in the fourth quarter of 2006. Contract ARPU was $56 in the fourth quarter of 2007, down from $57 in the third quarter of 2007, and the same as in the fourth quarter of 2006.           -- The sequential fall in contract ARPU was primarily due to lower variable revenues from contract customers. Data services revenues were $690 million in the fourth quarter of 2007, representing 15.8% of blended ARPU, or $8.20 per customer, compared to 15.4% of blended ARPU, or $8.10 per customer in the third quarter of 2007, and 12.5% of blended ARPU, or $6.50 per customer in fourth quarter of 2006.           -- Growth in messaging revenue continued to be the most significant driver of data ARPU. The total number of SMS and MMS messages increased to almost 24 billion in the fourth quarter of 2007, compared to 21 billion in the third quarter of 2007 and almost 13 billion in the fourth quarter of 2006.   -- Strong GPRS / EDGE access and usage revenues were another significant driver of the increase in data services revenues in the fourth quarter of 2007 compared to the fourth quarter of 2006.   -- T-Mobile USA's converged device offering was significantly strengthened during 2007 with the successful launch of a number of converged devices such as the T-Mobile ShadowTM, the T-Mobile Sidekick iDTM, LXTM, and SlideTM, T-Mobile WingTM, and the BlackBerry® CurveTM - the first converged device enabled for the new HotSpot @HomeSM service. The fourth quarter of 2007 saw a continued strong demand for these converged devices. CPGA and CCPU The average cost of acquiring a customer, Cost Per Gross Add ("CPGA” as defined in note 4 to the Selected Data, below) was $300 in the fourth quarter of 2007, up from $280 in the third quarter of 2007 and the same as in fourth quarter of 2006.           -- The sequentially higher CPGA is primarily due to higher advertising and marketing costs during the fourth quarter holiday season. The average cash cost of serving customers, Cash Cost Per User ("CCPU” as defined in note 3 to the Selected Data, below), was $25 per customer per month in the fourth quarter of 2007, down from $26 in the third quarter of 2007 and the same as in fourth quarter of 2006.           -- The primary reason for the decrease in CCPU in the fourth quarter of 2007 compared to the third quarter of 2007 was due to lower network costs. Capital Expenditures Cash capital expenditures (see note 7 to the Selected Data below) were $1.01 billion in the fourth quarter of 2007, compared with $500 million in the third quarter of 2007 and $675 million in the fourth quarter of 2006.           -- The sequential and year on year increase in cash capital expenditures was due to an increase in network capital expenditures, including T-Mobile USA's UMTS build-out. At the end of 2007, T-Mobile USA had deployed over 8,000 UMTS-capable cell sites. T-Mobile USA continued its commitment to invest in network coverage and quality in the fourth quarter of 2007, adding almost 900 new cell sites, bringing the total number of cell sites at the end of the quarter to 37,900. Other Highlights For the seventh consecutive reporting period, according to the J.D. Power and Associates 2008 Wireless Customer Care Performance StudySM released on January 31, 2008, T-Mobile USA ranked highest among the five largest wireless carriers in customer service performance. T-Mobile USA’s HotSpot @Home service continues to receive recognition in the industry. During the fourth quarter, HotSpot @Home received three awards for innovation: One of the 10 annual "New York Times” Pogie Awards, the wireless networking Annual Mobile Innovation Award from "Laptop” magazine, and the 2007 Product Differentiation Innovation Award from Frost & Sullivan, a market research firm. "T-Mobile has dedicated themselves to providing a feature-rich and seamless end user experience,” stated Frost & Sullivan. In February 2008 T-Mobile USA made the T-Mobile Hotspot @ Home Talk Forever Home Phone service available in selected markets (Dallas and Seattle). With the Talk Forever Home Phone, customers can connect their regular home phones to a dedicated T-Mobile Wi-Fi access point and pay a set price for unlimited calling to anyone, anytime. T-Mobile USA announced the proposed acquisition of SunCom Wireless (SunCom) in September 2007, which closed on February 22, 2008. The acquisition further enhances T-Mobile USA’s network coverage in the southeastern United States and the Caribbean. SunCom has operated a GSM/GPRS/EDGE network and provided roaming service to T-Mobile USA in these markets since 2004. This press release includes non-GAAP financial measures. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Reconciliations from the non-GAAP financial measures to the most directly comparable GAAP financial measures are provided below following Selected Data and the financial statements. T-Mobile USA is the U.S. operation of Deutsche Telekom AG’s (NYSE:DT) Mobile Communications Business, and is a wholly owned subsidiary of T-Mobile International. In order to provide comparability with the results of other US wireless carriers, all financial amounts are in US dollars and are based on accounting principles generally accepted in the United States ("GAAP”). T-Mobile USA results are included in the consolidated results of Deutsche Telekom, but differ from the information contained herein as Deutsche Telekom reports financial results in accordance with International Financial Reporting Standards (IFRS). SELECTED DATA FOR T-MOBILE USA               (thousands) YE 07 Q4 07 Q3 07 Q2 07 Q1 07 YE 06 Q4 06 Covered population8 284,000 284,000 283,000 282,000 280,000 277,000 277,000 Customers, end of period2 28,685 28,685 27,734 26,877 26,020 25,041 25,041 Thereof contract customers 23,914 23,914 23,181 22,624 21,937 21,211 21,211 Thereof prepaid customers 4,771 4,771 4,553 4,253 4,083 3,829 3,829 Net customer additions 3,644 951 857 857 980 3,351 901                 Minutes of use/contract customer/month 1,125 1,123 1,130 1,150 1,090 1,030 1,020 Contract churn 1.90% 1.80% 2.00% 1.80% 1.90% 2.20% 2.10% Blended churn 2.80% 2.80% 2.90% 2.70% 2.60% 2.90% 2.90%   ($)               ARPU (blended) 1, 9 52 52 53 53 52 52 52 ARPU (contract) 57 56 57 57 56 55 56 ARPU (prepaid) 19 20 18 19 19 22 21 Cost of serving (CCPU)3 25 25 26 25 25 25 25 Cost per gross add (CPGA)4 300 300 280 300 310 300 300   ($ million)               Total revenues 19,288 5,068 4,894 4,780 4,546 17,138 4,523 Service revenues1 16,892 4,371 4,332 4,195 3,994 14,511 3,813 OIBDA5 5,350 1,327 1,412 1,386 1,225 4,712 1,172 OIBDA margin 6 31% 30% 32% 32% 30% 31% 30% Capital expenditures7 2,677 1,009 500 546 622 2,608 675                 Cell sites on-air10 37,900 37,900 37,000 36,400 35,800 35,400 35,400 Since all companies do not calculate these figures in the same manner, the information contained in this press release may not be comparable to similarly titled measures reported by other companies. 1   Average Revenue Per User ("ARPU") represents the average monthly service revenue we earn from our customers. ARPU is calculated by dividing service revenues for the specified period by the average customers during the period, and further dividing by the number of months in the period. We believe ARPU provides management with useful information to evaluate the recurring revenues generated from our customer base.   Service revenues include contract, prepaid, and roaming and other service revenues, and do not include equipment sales and other revenues. Data services revenues is a component of service revenues. Per the consolidated financial statements below, other revenues include co-location rental income and wholesale revenues from the usage of our network in California, Nevada, and New York by AT&T customers, among other items, and are therefore not included in ARPU.   2 Contract customers and prepaid customers include FlexPay customers depending on the type of rate plan selected - one with and one without a contract. FlexPay customers with a contract are included in contract customers, and FlexPay customers without a contract are included in prepaid customers.   3 The average cash cost of serving customers, or Cash Cost Per User ("CCPU") is a non-GAAP financial measure and includes all network and general and administrative costs as well as the subsidy loss unrelated to customer acquisition. Subsidy loss unrelated to customer acquisition includes upgrade handset costs for existing customers offset by upgrade equipment revenues and other related direct costs. This measure is calculated as a per month average by dividing the total costs for the specified period by the average total customers during the period and further dividing by the number of months in the period. We believe that CCPU, which is a measure of the costs of serving a customer, provides relevant and useful information and is used by our management to evaluate the operating performance of our business.   4 Cost Per Gross Add ("CPGA") is a non-GAAP financial measure and is calculated by dividing the costs of acquiring a new customer, consisting of customer acquisition costs plus the subsidy loss related to customer acquisition for the specified period, by gross customers added during the period. Subsidy loss related to customer acquisition consists primarily of the excess of handset and accessory costs over related revenues incurred to acquire new customers. We believe that CPGA, which is a measure of the cost of acquiring a customer, provides relevant and useful information and is used by our management to evaluate the operating performance of our business.   5 Operating Income Before Interest, Depreciation and Amortization ("OIBDA") is a non-GAAP financial measure, which we define as operating income before depreciation and amortization. In a capital-intensive industry such as wireless telecommunications, we believe OIBDA, as well as the associated percentage margin calculation, to be meaningful measures of our operating performance. OIBDA should not be construed as an alternative to operating income or net income as determined in accordance with GAAP, as an alternative to cash flows from operating activities as determined in accordance with GAAP or as a measure of liquidity. We use OIBDA as an integral part of our planning and internal financial reporting processes, to evaluate the performance of our business by senior management and to compare our performance with that of many of our competitors. We believe that operating income is the financial measure calculated and presented in accordance with GAAP that is the most directly comparable to OIBDA.   6 OIBDA margin is a non-GAAP financial measure, which we define as OIBDA (as described in note 5 above) divided by total revenues less equipment sales.   7 Capital expenditures include amounts paid by T-Mobile USA for purchases of property, plant and equipment.   8 The covered population statistic represents T-Mobile USA's GSM / GPRS / EDGE 1900 voice and data network coverage, combined with roaming and other agreements.   9 Data ARPU is defined as total data revenues from contract customers, prepaid customers, and other data revenues, divided by average contract and prepaid customers during the period. Wi-Fi revenues have historically been reported in other (non-service) revenues. Beginning in the first quarter of 2007, Wi-Fi revenues are shown as a component of service revenues. As a result of this change, data ARPU was approximately $0.50 higher in the fourth quarter of 2007. If this change was applied retrospectively it would have had similar impacts on data ARPU and data revenue in each of the four quarters of 2006. Since the impacts of this change on contract ARPU, blended ARPU, and service revenues are immaterial, these metrics have not been retroactively adjusted in prior periods.   10 Cell sites are defined as the total number of sites in service at the end of the period, excluding small low power, low gain access sites. A site is in service when all equipment is installed and the site is integrated into the network. T-MOBILE USA Condensed Consolidated Balance Sheets (dollars in millions) (unaudited)   December 31, December 31, 2007   2006 ASSETS Current assets: Cash and cash equivalents $ 64 $ 78 Short-term affiliate loan receivable 1,075 - Accounts receivable, net of allowances of $277 and $203, respectively 2,617 2,439 Accounts receivable from affiliates 274 145 Inventory 990 612 Current portion of net deferred tax assets 994 598 Licenses held for exchange 1 1,145 Other current assets   538       446   Total current assets 6,553 5,463 Property and equipment, net of accumulated depreciation of $9,306 and $7,058, respectively 11,258 10,932 Goodwill 10,701 10,701 Spectrum licenses 14,645 14,516 Other intangible assets, net of accumulated amortization of $475 and $421, respectively 47 102 Other assets   155       181   $ 43,359     $ 41,895     LIABILITIES AND STOCKHOLDER’S EQUITY   Current liabilities: Accounts payable and accrued liabilities $ 3,790 $ 2,955 Current payables to affiliates 1,127 1,183 Liability for license exchange - 1,145 Other current liabilities   380       365   Total current liabilities   5,297       5,648     Long-term payables to affiliates 6,712 7,773 Deferred tax liabilities 1,622 491 Other long-term liabilities   915       756   Total long-term liabilities   9,249       9,020     Minority interest in equity of consolidated subsidiaries 89 84   Commitments and contingencies   Stockholder’s equity: Common stock 44,469 44,462 Accumulated deficit   (15,745 )     (17,319 ) Total stockholder’s equity   28,724       27,143   $ 43,359     $ 41,895   T-MOBILE USA Condensed Consolidated Statements of Operations (dollars in millions) (unaudited)   Quarter Ended December 31, 2007 Quarter Ended December 31, 2006 Year Ended December 31, 2007 Year Ended December 31, 2006 Revenues: Contract $ 3,939 $ 3,470 $ 15,308 $ 13,078 Prepaid 277 235 976 945 Roaming and other service 155 108 607 488 Equipment sales 620 588 2,061 1,983 Other   77       122       336       644   Total revenues   5,068       4,523       19,288       17,138   Operating expenses: Network 1,125 954 4,344 3,621 Cost of equipment sales 879 881 3,120 3,078 General and administrative 836 697 3,200 2,707 Customer acquisition 901 819 3,274 3,020 Depreciation and amortization   681       623       2,609       2,522   Total operating expenses   4,422       3,974       16,547       14,948   Operating income 646 549 2,741 2,190 Other expense, net   (33 )     (142 )     (346 )     (397 ) Income before income taxes 613 407 2,395 1,793 Income tax (expense)/benefit   (230 )     (228 )     (821 )     646   Net income $ 383     $ 179     $ 1,574     $ 2,439   T-MOBILE USA Condensed Consolidated Statements of Cash Flows (dollars in millions) (unaudited)   Year Ended December 31, 2007 Year Ended December 31, 2006 Operating activities: Net income $ 1,574 $ 2,439 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,609 2,522 Income tax expense/(benefit) 821 (646 ) Other, net 248 203 Changes in operating assets and liabilities: Accounts receivable (381 ) (284 ) Inventory (378 ) (202 ) Other current and non-current assets (132 ) 35 Accounts payable and accrued liabilities   527       270   Net cash provided by operating activities   4,888       4,337   Investing activities: Purchases of property and equipment (2,677 ) (2,608 ) Payments for wireless properties and network build (86 ) (837 ) Short-term affiliate loans (1,675 ) (750 ) Other, net   48       23   Net cash used in investing activities   (4,390 )     (4,172 ) Financing activities: Long-term debt repayments to affiliates (515 ) (150 ) Other, net   3       6   Net cash used in financing activities   (512 )     (144 )   Change in cash and cash equivalents (14 ) 21 Cash and cash equivalents, beginning of period   78       57   Cash and cash equivalents, end of period $ 64     $ 78   T-MOBILE USA Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (dollars in millions, except for CPGA and CCPU) (unaudited)   OIBDA can be reconciled to our operating income as follows:   YE 2007 Q4 2007 Q3 2007 Q2 2007 Q1 2007 YE 2006 Q4 2006   OIBDA $ 5,350 $ 1,327 $ 1,412 $ 1,386 $ 1,225 $ 4,712 $ 1,172 Depreciation and amortization   (2,609 )     (681 )     (643 )     (659 )     (626 )     (2,522 )     (623 )   Operating income $ 2,741     $ 646     $ 769     $ 727     $ 599     $ 2,190     $ 549   The following schedule reflects the CPGA calculation and provides a reconciliation of cost of acquiring customers used for the CPGA calculation to customer acquisition costs reported on our condensed consolidated statements of operations: YE 2007 Q4 2007 Q3 2007 Q2 2007 Q1 2007 YE 2006 Q4 2006 Customer acquisition costs $ 3,274 $ 901 $ 801 $ 777 $ 795 $ 3,020 $ 819   Plus: Subsidy loss Equipment sales (2,061 ) (620 ) (480 ) (496 ) (465 ) (1,983 ) (588 ) Cost of equipment sales   3,120       879       733       747       761       3,078       881   Total subsidy loss   1,059       259       253       251       296       1,095       293     Less: Subsidy loss unrelated to customer acquisition   (623 )     (157 )     (143 )     (146 )     (177 )     (715 )     (193 ) Subsidy loss related to customer acquisition   436       102       110       105       119       380       100   Cost of acquiring customers $ 3,710     $ 1,003     $ 911     $ 882     $ 914     $ 3,400     $ 919     CPGA ($ / new customer added) $ 300 $ 300 $ 280 $ 300 $ 310 $ 300 $ 300 T-MOBILE USA Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (dollars in millions, except for CPGA and CCPU) (unaudited)             The following schedule reflects the CCPU calculation and provides a reconciliation of the cost of serving customers used for the CCPU calculation to total network costs plus general and administrative costs reported on our condensed consolidated statements of operations:   YE 2007   Q4 2007   Q3 2007   Q2 2007   Q1 2007   YE 2006   Q4 2006   Network costs $ 4,344 $ 1,125 $ 1,130 $ 1,082 $ 1,007 $ 3,621 $ 954 General and administrative   3,200     836     818     788     758     2,707     697 Total network and general and administrative costs   7,544 1,961 1,948 1,870 1,765 6,328 1,651 Plus: Subsidy loss unrelated to customer acquisition     623     157     143     146     177     715     193   Total cost of serving customers $ 8,167   $ 2,118   $ 2,091   $ 2,016   $ 1,942   $ 7,043   $ 1,844   CCPU ($ / customer per month) $ 25 $ 25 $ 26 $ 25 $ 25 $ 25 $ 25 About T-Mobile USA: Based in Bellevue, WA, T-Mobile USA, Inc. is the US operation of Deutsche Telekom AG’s (NYSE:DT) Mobile Communications Business, and is a wholly owned subsidiary of T-Mobile International. T-Mobile USA’s innovative wireless products and services help empower people to connect effortlessly to those who matter most. T-Mobile USA’s GSM/GPRS/EDGE 1900 voice and data network, when combined with roaming and other agreements, reaches 284 million people in the U.S. In addition, T-Mobile USA operates one of the largest Wi-Fi (802.11b) wireless broadband (WLAN) networks in the country (including roaming sites), available in 9,700 convenient public access locations nationwide. Multiple independent research studies continue to rank T-Mobile USA highest in wireless customer satisfaction, wireless call quality and wireless customer care in numerous regions throughout the U.S. For more information, visit the company website at www.t-mobile.com. About T-Mobile International: T-Mobile International is one of the world’s leading mobile communications businesses. As part of the Deutsche Telekom AG (NYSE: DT) group, T-Mobile International concentrates on the key markets in Europe and the United States. By the end of the fourth quarter of 2007, 120 million mobile customers were served by the mobile communications segments of the Deutsche Telekom group, all over a common technology platform based on GSM, the world’s most widely used digital wireless standard. For more information about T-Mobile International please visit www.t-mobile.net. For further information on Deutsche Telekom, please visit www.telekom.de/investor-relations.