T-Mobile reports customer growth for Q1 2012, tries not to think about Q4 2011

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T-Mobile USA Reports First Quarter 2012 Operating Results

BELLEVUE, Wash.--(BUSINESS WIRE)--T-Mobile USA, Inc. today reported
first quarter 2012 results and provided an update on its 2011 annual
assessment of indefinite-lived assets. In the first quarter of 2012,
T-Mobile USA reported adjusted OIBDA of $1.27 billion, up 7.2% from
$1.19 billion reported in the first quarter of 2011 and branded
contract ARPU in the first quarter of 2012 of $58, up from $56 in the
first quarter of 2011. Additionally, net customer additions were
187,000 in the first quarter of 2012, compared to 99,000 net customer
losses in the first quarter of 2011.

"T-Mobile USA delivered an encouraging adjusted OIBDA
year-on-year increase in the first quarter of 2012. Philipp Humm and
his team managed the business with improved efficiency in a still
difficult environment, laying the foundation for successful
implementation of the Challenger Strategy"

"In the first quarter, T-Mobile USA delivered strong performance
across several key metrics - adding customers, increasing branded
ARPUs year-on-year and effectively managing costs to deliver a solid
adjusted OIBDA margin. While branded contract churn remains a focus,
in the first quarter of 2012 we achieved our lowest level in seven
quarters," said Philipp Humm, CEO and President of T-Mobile USA.
"In just a short time since the December breakup of the AT&T
deal, T-Mobile USA has redefined and restarted our Challenger Strategy
including phase one of a major brand re-launch to redefine T-Mobile in
the marketplace."

"T-Mobile USA delivered an encouraging adjusted OIBDA
year-on-year increase in the first quarter of 2012. Philipp Humm and
his team managed the business with improved efficiency in a still
difficult environment, laying the foundation for successful
implementation of the Challenger Strategy," said René Obermann,
CEO of Deutsche Telekom.

T-Mobile USA Challenger Highlights

T-Mobile USA has made considerable progress in executing against the
reinvigorated Challenger Strategy, which was announced in February
2012. Most significant is progress against the newly announced $4
billion network modernization and 4G evolution effort, which will
further improve existing voice and data coverage and pave the way for
long term evolution ("LTE") service in 2013. Already this
year, T-Mobile USA has entered into a spectrum exchange agreement with
Leap Wireless International, Inc. and secured key AWS spectrum
licenses from AT&T, which were agreed to as part of the breakup of
the proposed merger between the two companies. More recently, T-Mobile
USA signed agreements with Ericsson and Nokia Siemens Networks to
deploy state-of-the-art LTE-capable equipment at 37,000 cell sites in
2012 and 2013.

Other investment areas core to T-Mobile USA's Challenger Strategy
include continued retail expansion as well as an increased investment
in the brand. So far this year, the Company has expanded its branded
distribution, adding 115 new branded dealers and earned Wal-Mart's
2011 "Supplier of the Year" award in both the Wireless
category and the overall Entertainment Division.

The company also unveiled phase-one of a brand re-launch program,
introducing a new ad campaign that encourages customers to Test Drive
T-Mobile USA's competitive 4G experience.

Additionally, the Company continued to expand its portfolio of
compelling 4G smartphones in the first quarter. T-Mobile USA became
the first U.S. carrier to offer a Nokia Windows® Phone, the
affordable, 4G-capable Nokia Lumia 710, and launched the 42
Mbps-capable Samsung Galaxy S® Blaze™ 4G. In April 2012, T-Mobile USA
launched the 42 Mbps-capable HTC One™ S.

Total Customers

T-Mobile USA served 33.4 million customers at the end of first quarter
2012, compared to 33.2 million customers at the end of the fourth
quarter of 2011 and 33.6 million customers at the end of first quarter
2011.

First quarter 2012 net customer additions of 187,000, compared to net
customer losses of 526,000 in the fourth quarter of 2011, and net
customer losses of 99,000 in the first quarter of 2011.
The sequential increase in net customer additions was driven primarily
by improvements in churn from branded contract and machine-to-machine
("M2M") customers. Year-on-year, net customer additions also
improved related to the growth of T-Mobile USA's unlimited Monthly 4G
prepaid plans.

Branded Customers

Branded contract net customer losses, excluding M2M, were 510,000 in
the first quarter of 2012, a 28% improvement from the fourth quarter
of 2011 and an 11% improvement from the first quarter of 2011.
Sequentially, the improvement in branded contract customer losses was
driven primarily by fewer branded contract deactivations. The fourth
quarter of 2011 included significantly higher contract deactivations
as a result of the launch of the iPhone 4S by three nationwide
competitors in mid-October.
The year-over-year improvement in branded contract customer losses was
driven primarily by lower branded contract churn related to the
strategic phase-out of discontinued products, such as FlexPay,
partially offset by fewer branded contract gross additions.
The Company discontinued its FlexPay and Even More Plus products in
2011 due to low customer satisfaction and profitability. In the first
quarter of 2012, remaining core branded contract and prepaid products
saw year-on-year growth as customers continue to migrate from
discontinued products.
Branded prepaid net customer additions, excluding MVNO customers, were
249,000 in the first quarter of 2012; up from fourth quarter 2011
branded prepaid net customer additions of 220,000 and improved from
82,000 net branded prepaid customer losses in the first quarter of
2011.
The sequential and year-on-year improvement in branded prepaid net
customer additions was due to increased branded prepaid gross
additions, a result of the continued success of unlimited Monthly 4G
prepaid plans introduced in the second quarter of 2011. Additionally,
improvements in churn related to the strategic phase-out of
discontinued products, such as FlexPay No Contract, also contributed
to prepaid net addition growth.

Wholesale

M2M net customer additions were 262,000 in the first quarter of 2012
compared to net customer losses of 95,000 in the fourth quarter of
2011 and net customer additions of 192,000 in the first quarter of
2011.
The sequential change was driven by improved M2M customer churn. In
the fourth quarter of 2011, there were significantly higher M2M
deactivations including a nearly 265,000 deactivation related to one
customer. M2M customers, which have significantly lower ARPUs
(averaging less than $2) than other contract customers, totaled 2.7
million at March 31, 2012.
The year-over-year change was driven by higher M2M gross customer
additions, partially offset by higher deactivations.

MVNO customers increased in the first quarter of 2012, totaling 3.8
million customers as of March 31, 2012.

Sequentially, MVNO net customer additions increased due primarily to
fewer MVNO customer deactivations.

Compared to the first quarter of 2011, MVNO net customer additions
decreased due primarily to fewer MVNO gross customer additions.

Churn from branded customers was 3.2% in the first quarter of 2012,
down 40 basis points from the fourth quarter of 2011 and 10 basis
point from the first quarter of 2011.
Sequentially and year-on-year, branded churn decreased due in part to
churn reduction initiatives. Additionally, branded churn in the fourth
quarter of 2011 was higher as a result of competitive market
conditions and the launch of the iPhone 4S by three competitors.

Branded contract churn, excluding M2M customers, was 2.5% in the first
quarter of 2012, down 50 basis points from the fourth quarter of 2011
and 10 basis point from the first quarter of 2011.

The sequential and year-on-year improvement in branded contract churn
was the result of T-Mobile USA's continued churn reduction
initiatives. Additionally, the fourth quarter of 2011 was negatively
impacted by competitors' launches of the iPhone 4S, which is not
offered by T-Mobile USA.

Branded prepaid churn, excluding MVNO, was 6.4% in the first quarter
of 2012, down 30 basis points from the fourth quarter of 2011 and down
60 basis points from the first quarter of 2011.

The sequential and year-on-year decrease in branded prepaid churn was
driven primarily by the continued strategic phase-out of discontinued
high-churn products, such as FlexPay No Contract.

Branded contract Average Revenue Per User ("ARPU"),
excluding M2M customers, was $58 in the first quarter of 2012,
consistent with the fourth quarter of 2011 and up $2 from the first
quarter of 2011.
Year-on-year, branded contract ARPU increased as data revenue growth
more than offset lower voice revenue, which included effects from the
shift to unlimited Value plans. Branded contract ARPU also benefited
from the introduction of reconnection fees in the third quarter of
2011, which increased branded contract ARPU by approximately $1
year-on-year.

Branded contract data ARPU of $18.80 in the first quarter of 2012,
increased 3.9% sequentially and 18.2% year-on-year from the continued
adoption of data plans.
3G/4G smartphones used by contract customers now account for 11.6
million or 53% of total branded contract customers, up from 11.0
million or 49% in the fourth quarter of 2011 and 9.1 million or 38% in
the first quarter of 2011.

Branded prepaid ARPU, excluding MVNO customers, was $25 in the first
quarter of 2012, consistent with the fourth quarter of 2011 and up $1
from the first quarter of 2011.
Year-on-year, branded prepaid ARPU increased primarily due to
continued growth in unlimited Monthly 4G prepaid products. The
discontinuation of certain products, such as FlexPay No Contract, also
impacted the year-on-year development in branded prepaid ARPU. Branded
prepaid ARPU, excluding FlexPay No Contract, increased $8 year-on-year
to $25 in the first quarter of 2012.

Branded data ARPU in the first quarter of 2012 amounted to $16.90 per
branded customer, an increase of 2.4% from the fourth quarter of 2011
and 15.8% from the first quarter of 2011.

3G/4G smartphone sales were 2.5 million units in the first quarter of
2012, slightly lower than 2.6 million units in the fourth quarter of
2011, but a 25% increase from 2.0 million units sold in the first
quarter of 2011. Smartphone sales accounted for 80% of units, or 94%
of handset sales revenues, in the first quarter of 2012.
Blended ARPU was $45 in the first quarter of 2012, down $1 from both
the fourth quarter of 2011 and the first quarter of 2011 primarily due
to dilution from wholesale customers and a change in portfolio mix
towards branded prepaid customers.

Revenue

Service revenues were $4.4 billion in the first quarter of 2012, down
2.7% from the fourth quarter of 2011 and down 4.0% from the first
quarter of 2011.
Sequentially and year-on-year, quarterly service revenues decreased
primarily due to branded contract customer losses, which were
partially offset by the increased adoption of data plans in the
contract and prepaid customer base. Additionally, branded prepaid
revenues increased compared to the fourth quarter of 2011 and first
quarter of 2011, a result of the continued success of unlimited
Monthly 4G prepaid plans. Service revenues were also negatively
impacted by the growth in unlimited Value plans, which do not include
subsidized handset equipment. However, handset equipment sales sold in
connection with Value plans resulted in higher equipment sales, as
described below.
Data service revenues were $1.4 billion in the first quarter of 2012,
up 1.0% from the fourth quarter of 2011 and 8.2% from the first
quarter of 2011.
Total revenues, including service, equipment sales, and other revenues
were $5.0 billion in the first quarter of 2012, down 2.8% from the
fourth quarter of 2011 and 2.5% from the first quarter of 2011.

Compared to the fourth and first quarters of 2011, total revenues
changed due primarily to branded contract customer losses as described
above. Additionally, equipment revenues increased year-on-year,
despite lower overall sales volumes, due to handset program changes in
connection with T-Mobile USA's Value plans and due to stronger
smartphone sales. As a result, total revenues declined less than
service revenues.

Adjusted OIBDA

T-Mobile USA reported Adjusted OIBDA of $1.27 billion in the first
quarter of 2012, down 9.0% from the fourth quarter of 2011, but up
7.2% from the first quarter of 2011.
Adjusted OIBDA in the first quarter of 2012 and the fourth quarter of
2011 excludes special charges of $30 million and $123 million,
respectively, primarily consisting of employee retention benefit
expenses related to the terminated AT&T transaction. Additionally,
T-Mobile USA announced in March that it will consolidate its call
center operations from 24 to 17 facilities by the end of the second
quarter of 2012, which resulted in organizational restructuring
expenses in the first quarter of 2012.
Sequentially, adjusted OIBDA decreased as a result of lower service
revenues driven by branded customer losses and higher general and
administrative expenses, as described below.

Year-on-year, adjusted OIBDA increased as a result of reduced losses
from equipment subsidies due to handset program changes from the
unlimited Value plans, lower network expenses and continued cost
management programs. This decrease was partially offset by higher
general and administrative expenses, as described below.
Adjusted OIBDA margin was 29% in the first quarter of 2012, down from
31% in fourth quarter of 2011, but up from 26% in the first quarter of
2011.
Sequentially, OIBDA margin decreased slightly as a result of lower
service revenues driven by branded customer losses.

Year-on-year OIBDA margin improved significantly due to the reductions
in equipment subsidies in connection with unlimited Value plans.
During the first quarter of 2012, T-Mobile USA completed the 2011
annual impairment assessment of its indefinite-lived assets. As a
result of the impairment assessment, T-Mobile USA recorded a non-cash
impairment charge of $3.9 billion related to goodwill and $2.5 billion
related to spectrum licenses, with an associated $1.0 billion tax
benefit for the quarter ended December 31, 2011. These charges had no
effect on either the Company's current cash balance or future cash
flows.

Operating Expenses

Total operating expenses (excluding impairment, restructuring and
AT&T transaction-related costs) were $4.5 billion in the first
quarter of 2012, down 0.7% from the fourth quarter of 2011 and 4.3%
from the first quarter of 2011.
Losses from equipment subsidies in the first quarter of 2012 were $310
million (equipment revenues of $535 million, less cost of equipment
sales of $845 million), decreased 4.6% from fourth quarter 2011 and
41.6% from first quarter 2011. The year-on-year decrease in net
subsidy was due primarily to handset program changes from the
unlimited Value plans.

Network expenses of $1.2 billion in the first quarter of 2012, were
consistent with the fourth quarter of 2011, but decreased 4.5% from
the first quarter of 2011. This year-on-year decrease was due
primarily to reduced rates of providing long distance service.
Additionally, due to the transition to enhanced backhaul (e.g. fiber),
T-Mobile USA was able to accommodate higher data volumes year-on-year
without significant increases in network costs.

Customer acquisition expenses in the first quarter of 2012 of $749
million decreased 8.8% from the fourth quarter of 2011 and 4.2% from
the first quarter of 2011. This sequential decrease was due primarily
to reductions in advertising which are typical for the first quarter
following the fourth quarter holiday sales activity. Year-on-year,
this decrease was due primarily to the shift in mix towards prepaid
customers, resulting in reduced commission expenses.

General and administrative expenses in the first quarter of 2012 of
$970 million increased 10.0% from the fourth quarter of 2011 and 5.4%
from the first quarter of 2011. This sequential increase was due
primarily to higher personnel incentive expenses and contract renewal
upgrade commissions. The year-on-year increase was due primarily to
higher bad debt expense associated with new products (e.g. deposit
products) and changes in customer mix toward subprime customers.
Depreciation and amortization expenses of $747 million in the first
quarter of 2012 were fairly consistent with both the fourth quarter of
2011 and first quarter of 2011.

Capital Expenditures

Cash capital expenditures were $747 million in the first quarter of
2012, an increase of 35.6% from the fourth quarter of 2011 and
consistent with the first quarter of 2011.
In the first quarter of 2012, T-Mobile USA announced that it will
invest $4 billion in total to strengthen its 4G network, including the
planned launch of LTE technology in 2013. Expenditures in the first
quarter of 2012 were due in part to these network modernization
efforts. Sequentially, there were also increased payments related to
seasonal payment timing differences. T-Mobile USA has continued to
invest in its 4G network, which now reaches over 220 million people.

Commitments and contingencies

Stockholder's equity:
Common stock and additional paid-in capital 31,600 31,600
Accumulated other comprehensive loss (1 ) (28 )
Accumulated deficit (15,587 ) (15,787 )
Total stockholder's equity 16,012 15,785
Total liabilities and stockholder's equity $ 40,074 $ 40,609

T-MOBILE USA
Condensed Consolidated Statements of Operations

(dollars in millions)

(unaudited)

Quarter Ended Quarter Ended Quarter Ended
March 31, December 31, March 31,

2012
2011 2011

Revenues:
Branded Contract $ 3,821 $ 3,966 $ 4,108
Branded Prepaid 377 350 323
Total Branded Revenues 4,198 4,316 4,431
Wholesale 130 128 86
Roaming and other services 116 121 113
Total Service Revenues 4,444 4,565 4,630
Equipment sales 535 549 487
Total Service and Sales Revenues 4,979 5,114 5,117
Other 55 65 44
Total revenues 5,034 5,179 5,161
Operating expenses:
Network 1,196 1,202 1,253
Cost of equipment sales 845 874 1,018
Customer acquisition 749 821 782
General and administrative 970 882 920
Depreciation and amortization 747 761 735

Total operating expenses (excluding impairment, restructuring and
AT&T transaction-related costs)
4,507 4,540 4,708
Impairment charges - 6,420 -
AT&T transaction-related costs 24 123 -
Restructuring costs 6 - -

Total operating expenses (including impairment, restructuring and
AT&T transaction-related costs)
4,537 11,083 4,708
Operating income/(loss) 497 (5,904 ) 453

Other expense, net (172 ) (178 ) (184 )
Income/(loss) before income taxes 325 (6,082 ) 269

Income tax (expense)/benefit (125 ) 685 (134 )
Net income/(loss) 200 (5,397 ) 135

Other comprehensive income/(loss), net of tax:

Unrealized gain/(loss) on cash flow hedges and foreign currency
translation
26 94 (25 )

Unrealized gain on available-for-sale securities
1 - 4
Total comprehensive income/(loss) $ 227 $ (5,303 ) $ 114

T-MOBILE USA
Condensed Consolidated Statements of Cash Flows

(dollars in millions)

(unaudited)

Quarter Ended Quarter Ended Quarter Ended
March 31, December 31, March 31,
2012 2011 2011
Operating activities:
Net income/(loss) $ 200 $ (5,397 ) $ 135

Adjustments to reconcile net income to net cash provided by operating
activities:

Impairment charges - 6,420 -
Depreciation and amortization 747 761 735
Income tax expense/(benefit) 125 (685 ) 134
Bad debt expense 256 230 165
Other, net 22 27 53
Changes in operating assets and liabilities:
Accounts receivable (90 ) (136 ) 20
Inventory 31 65 (27 )
Other current and non-current assets (89 ) (71 ) (66 )
Accounts payable and accrued liabilities (63 ) 76 7
Accrued liabilities related to restructuring and AT&T
transaction-related costs (109 ) 120 -
Net cash provided by operating activities 1,030 1,410 1,156
Investing activities:
Purchases of property and equipment (747 ) (551 ) (749 )
Expenditures related to spectrum licenses (4 ) (8 ) (4 )
Short-term affiliate loan receivable, net (279 ) (905 ) (450 )
Other, net (11 ) 23 2
Net cash used in investing activities (1,041 ) (1,441 ) (1,201 )
Financing activities:
Short-term borrowings, net - - 33
Net cash provided by financing activities - - 33

Change in cash and cash equivalents (11 ) (31 ) (12 )
Cash and cash equivalents, beginning of period 390 421 109
Cash and cash equivalents, end of period $ 379 $ 390 $ 97

T-MOBILE USA
Reconciliation of Non-GAAP Financial Measures to GAAP Financial
Measures

(dollars in millions)

(unaudited)

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.

Adjusted OIBDA is reconciled to operating income as follows:

Q1 Full Year Q4 Q3 Q2 Q1
2012 2011 2011 2011 2011 2011
Adjusted OIBDA $ 1,274 $ 5,310 $ 1,400 $ 1,445 $ 1,277 $ 1,188
Depreciation and amortization (747 ) (2,982 ) (761 ) (731 ) (755 )
(735 )
Adjusted operating income (excl. impairment, restructuring and
AT&T transaction-related costs) 527 2,328 639 714 522 453
Impairment charges - (6,420 ) (6,420 ) - - -
Restructuring charges (6 ) - - - - -
AT&T transaction-related costs (24 ) (187 ) (123 ) (51 ) (13 ) -
Operating income/(loss) $ 497 $ (4,279 ) $ (5,904 ) $ 663 $ 509 $ 453

Forward-Looking Statements

This news release includes "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of
1995. The statements in this news release regarding the business
outlook, expected performance and forward-looking guidance, as well as
other statements that are not historical facts, are forward-looking
statements. The words "estimate," "project,"
"forecast," "intend," "expect,"
"believe," "target," "providing
guidance" and similar expressions are intended to identify
forward-looking statements.

Forward-looking statements are estimates and projections reflecting
management's judgment based on currently available information and
involve a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the
forward-looking statements. With respect to these forward-looking
statements, management has made assumptions regarding, among other
things, customer and network usage, customer growth and retention,
pricing, operating costs, the timing of various events and the
economic and regulatory environment.
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