T-Mobile’s ‘Uncarrier revolution’ could fizzle out

T-Mobile Q1 2014 Subscriber Additions

T-Mobile’s aggressive new plans have generated massive media coverage and its flamboyant CEO has turned into a bit of a nerd superstar. But now that all American carriers have reported Q1 numbers, the actual results T-Mobile is achieving look a bit murkier than people expected. The share price of T-Mobile dropped sharply yesterday as the company revealed its Average Revenue Per User (ARPU) plunged to $50.70 from $55.47 a year earlier. Markets were expecting a number north of $51.00, which means the new customers T-Mobile is acquiring are spending less than analysts thought they would.

And here is the weirdest part: even though T-Mobile’s price aggression is hitting its revenue more than expected, the rival operators are doing better than expected. Sprint added 58,000 postpaid subscribers in Q1 2014. This was a lot better than expected, though far below T-Mobile’s 869,000 postpaid net additions. AT&T added 566,000 postpaid subscribers, roughly 10% more than markets expected. Verizon added 1,573,000 postpaid subscribers, again more than expected.

T-Mobile is clearly increasing its market share and has pulled even with Verizon in total new subscribers, a feat nobody thought possible a year ago. Yet the triumph of the company is not quite as glittering as it seemed a few months ago. T-Mobile is not slowing down its rivals as much as markets thought it would and its subscriber gains are being won at the price of steep ARPU erosion.

There is a distinct possibility that T-Mobile is robbing the worst customers from its rivals.

Updated to remove a mismatched reference to Verizon ARPU.

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