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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.

After launching mobile game company SpringToys tragically early in 2000, Tero Kuittinen spent eight years doing equity research at firms including Alliance Capital and Opstock. He is currently an analyst and VP of North American sales at mobile diagnostics and expense management Alekstra, and has contributed to, Forbes and Business 2.0 Magazine in addition to BGR.