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T-Mobile
USA Hits 20 Million Customer Milestone in the Third
Quarter 2005, While Achieving Record OIBDA Margin
Nov. 9, 2005
-- 1.06 million net new customers added in Q3 2005,
breaking 20 million total customer milestone
-- $1.17 billion in
Operating Income Before Depreciation and Amortization (OIBDA)
in Q3 2005, up 48% from Q3 2004
-- OIBDA margin of 34%
achieved in the quarter
-- Q3 2005 net income of
$458 million, up more than 80% from Q3 2004
-- T-Mobile awarded
highest honors for the second consecutive year in both
the J.D. Power and Associates 2005 Wireless Regional
Customer Satisfaction Index Study and the 2005 Wireless
Retail Satisfaction Performance Study
In the third quarter of
2005, T-Mobile USA added 1.06 million net new customers,
up from 972,000 customers added in the second quarter of
2005 and 901,000 added in the third quarter of 2004.
Approximately 68% of the growth in the third quarter of
2005 came from new postpay customers, which currently
comprise over 86% of T-Mobile USA's total customer base.
Approximately 32% of the growth came from new prepaid
customers, a similar proportion as in the second quarter
of 2005, continuing to reflect the success of T-Mobile
USA's attractive prepaid offering.
T-Mobile's commitment to
providing world-class customer service continued to be
recognized in independent studies in the third quarter.
During the third quarter T-Mobile earned highest honors
for the second consecutive year in both the J.D. Power
and Associates 2005 Wireless Regional Customer
Satisfaction Index Study and the 2005 Wireless Retail
Satisfaction Performance Study.
"Our employees and
Deutsche Telekom's shareholders have much to be pleased
about," said T-Mobile USA President and CEO Robert
Dotson. "In the third quarter, we hit the key 20
million customer milestone, adding more than one million
new net customers. We achieved this strong customer
growth while also delivering a solid OIBDA margin of
34%, a result that reflects our disciplined approach to
managing costs. For the second year in a row we captured
top Overall Customer Satisfaction awards from J.D. Power
and Associates. Bottom line -- our Get More Minutes,
Features and Service initiatives continue to resonate
with our customers."
Rene Obermann, CEO of
T-Mobile International and member of the board of
management of Deutsche Telekom (NYSE:DT), stated,
"T-Mobile USA once again delivered outstanding
results and continues to be a top driver of growth
across our entire business. Their continued strong
operating performance has made the US operations an
integral part to Deutsche Telekom's overall
success."
T-Mobile USA reported
OIBDA of $1.17 billion in the third quarter of 2005
compared to $1.08 billion in the second quarter of 2005
and $788 million in the third quarter of 2004. T-Mobile
USA's net income for the third quarter of 2005 was $458
million, up from $387 million in the second quarter of
2005 and $254 million in the third quarter of 2004.
T-Mobile USA service
revenues, which consist of postpay, prepaid, roaming and
other service revenues, were $3.15 billion in the third
quarter of 2005, up from $3.04 billion in the second
quarter of 2005 and $2.61 billion in the third quarter
of 2004. Affiliate and other revenues were $235 million
in the third quarter of 2005, down from $269 million in
the second quarter of 2005 and up from $35 million in
the third quarter of 2004. These revenues include Wi-Fi
revenues, co-location rental income, and revenues from
the usage of our network in California, Nevada, and New
York by Cingular's customers who have not yet
transitioned to Cingular's own network. Total revenues,
including service, equipment, and other revenues were
$3.80 billion in the third quarter of 2005.
Average Revenue Per User
("ARPU," as defined in the footnotes to the
Selected Data, below) was $53 in the third quarter of
2005, down slightly from $54 in the second quarter of
2005 and $55 in the third quarter of 2004. Data services
revenue continued to grow in the third quarter, and now
represents 8.8% of postpay ARPU, compared to 8.2% in the
second quarter of 2005 and 5.6% in the third quarter of
2004. Key to data services revenue growth was a net
increase of 68,000 BlackBerry customers in the quarter,
bringing the total number of BlackBerry users to
662,000. The launch of our EDGE network in the third
quarter of 2005 and continued Wi-Fi hot-spot expansion
underlines our ongoing commitment to provide customer
focused data services.
Postpay churn averaged
2.4% per month in the third quarter of 2005, down from
2.6% in the third quarter of 2004, and up slightly from
the 2.3% in the second quarter of 2005. Blended churn,
including both postpay and prepaid customers, was 2.9%
in the third quarter of 2005, compared to 2.8% achieved
in the second quarter of 2005 and slightly below 3.0% in
the third quarter of 2004. While churn decreased year on
year in the third quarter, it increased slightly from
the second quarter of 2005 due to the seasonal impact of
more customers reaching their one-year service
anniversaries in the third quarter of the year.
The average cost of
acquiring a customer, Cost Per Gross Add ("CPGA,"
as defined in the footnotes to the Selected Data, below)
was $271 in the third quarter of 2005, down from $310 in
the second quarter of 2005 and $301 in the third quarter
of 2004. The quarter on quarter improvement is due to a
reduction in handset subsidies, while at the same time
achieving solid customer growth.
The average cash cost of
serving customers, Cash Cost Per User ("CCPU,"
as defined in the footnotes to the Selected Data,
below), was $24.65 per customer per month in the third
quarter of 2005, down from $25.66 in the second quarter
of 2005 and up slightly from $24.23 in the third quarter
of 2004. The increase in CCPU relative to 2004 reflects
the inclusion in our results of all the costs to operate
the networks in California, Nevada and New York
associated with the acquisition of full ownership of
those networks at the beginning of 2005, including the
costs of providing transitional network services to
Cingular's customers. The year on year increase in CCPU
also reflects the change in our accounting for operating
leases in the fourth quarter of 2004 -- see further
discussion in the footnotes to the Selected Data, below.
Capital expenditures were
$585 million in the third quarter of 2005, compared with
$815 million in the second quarter of 2005 and $453
million in the third quarter of 2004. Capital
expenditures in the third quarter of 2004 did not
include $124 million related to the network joint
venture with Cingular, which was terminated in the first
quarter of 2005. T-Mobile USA added almost 1,000 new
cell sites in the third quarter of 2005, bringing the
total number of cell sites to nearly 32,000. During the
first nine months of 2005 we added more than 2,400 new
cell sites, reflecting our continued commitment to
improving network coverage and quality.
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, Inc.
("T-Mobile USA") is the U.S. operation of
T-Mobile International AG & Co. KG ("T-Mobile
International"), the mobile communications
subsidiary of Deutsche Telekom AG ("Deutsche
Telekom") (NYSE:DT). In order to provide
comparability with the results of other U.S. wireless
carriers all financial amounts are in USD 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
(`000) YTD 05 Q3 05 Q2 05 Q1 05 YTD 04 Q3 04
----------------------------------------------------------------------
Covered population 232,000 232,000 232,000 229,000 226,000 226,000
----------------------------------------------------------------------
Customers, end of
period 20,302 20,302 19,243 18,271 16,295 16,295
----------------------------------------------------------------------
thereof postpay
customers 17,512 17,512 16,796 16,115 14,528 14,528
----------------------------------------------------------------------
thereof prepaid
customers 2,790 2,790 2,447 2,156 1,767 1,767
----------------------------------------------------------------------
Net customer additions 2,988 1,059 972 957 3,167 901
----------------------------------------------------------------------
----------------------------------------------------------------------
Minutes of use/post
pay customer/month 956 985 960 921 867 908
----------------------------------------------------------------------
Postpay churn 2.3% 2.4% 2.3% 2.3% 2.5% 2.6%
----------------------------------------------------------------------
Prepaid churn 6.5% 6.6% 6.4% 6.4% 6.4% 6.6%
----------------------------------------------------------------------
Blended churn 2.8% 2.9% 2.8% 2.8% 3.0% 3.0%
----------------------------------------------------------------------
($ / month)
----------------------------------------------------------------------
ARPU (blended)(1) 54 53 54 54 55 55
----------------------------------------------------------------------
ARPU (postpay) 55 55 55 54 55 56
----------------------------------------------------------------------
ARPU (prepaid) 26 24 27 28 29 28
----------------------------------------------------------------------
Cost of serving
(CCPU)(3) 26 25 26 26 24 24
----------------------------------------------------------------------
Cost per gross add
(CPGA)(4) 310 271 310 357 315 301
----------------------------------------------------------------------
($ million)
----------------------------------------------------------------------
Total revenues 10,853 3,802 3,614 3,437 8,441 3,035
----------------------------------------------------------------------
Service revenues(1) 9,047 3,153 3,040 2,854 7,284 2,612
----------------------------------------------------------------------
OIBDA(2,5) 3,073 1,166 1,081 826 1,997 788
----------------------------------------------------------------------
OIBDA margin(8) 31% 34% 33% 27% 27% 30%
----------------------------------------------------------------------
Capital expenditures
(6) 4,238 585 815 2,838 1,716 453
----------------------------------------------------------------------
----------------------------------------------------------------------
Cell sites on-air (7) 31,840 31,840 30,876 29,869 29,056 29,056
----------------------------------------------------------------------
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 useful information
to evaluate the recurring revenues generated from our customer
base.
Service revenues include postpay, prepaid, and roaming and other
service revenues, and do not include equipment sales, affiliate
and other revenues. Revenues from our Wi-Fi business, co-location
rental income, and revenues for network usage by Cingular
customers who have not yet transitioned from the former joint
venture networks in California, Nevada, and New York, are
therefore not included in ARPU.
(2) As a result of financial statement restatements by numerous U.S.
public companies and publication of a letter by the Chief
Accountant of the SEC to the American Institute of Certified
Public Accountants on February 7, 2005, clarifying the
interpretation of existing US GAAP accounting literature
applicable to certain operating leases and leasehold improvements,
T-Mobile USA changed its accounting for operating leases and
recorded a cumulative adjustment representing a net charge to net
income of $143 million in the fourth quarter of 2004, of which $71
million related to the years 2001 through 2003. The net cumulative
adjustment was comprised of a $200 million increase in rent
expense based primarily on rent escalation clauses related to
future renewal periods of cell site leases; an increase of $33
million in the equity loss from the network sharing venture with
Cingular also related to cell site leases; a reduction of $53
million in depreciation expense to adjust the depreciable life of
leasehold improvements; and a reduction of $36 million in the loss
provision related to dissolution of the network sharing joint
venture with Cingular. Financial results for 2004 and prior
periods have not been restated.
The following table provides the impact of the cumulative
adjustments as it relates to the quarterly results in 2004 as if
restated.
($ million) Total 2004 Q4 2004 Q3 2004 Q2 2004 Q1 2004
----------------------------------------------------------------------
OIBDA (2,5) (93.4) (24.2) (23.9) (23.2) (22.1)
----------------------------------------------------------------------
OIBDA margin (8) (0.9%) (0.9%) (0.9%) (0.9%) (1.0%)
----------------------------------------------------------------------
Depreciation (2.0) (.5) (.5) (.5) (.5)
----------------------------------------------------------------------
Equity (loss) (13.6) (3.5) (3.4) (3.4) (3.3)
----------------------------------------------------------------------
Other expense 36.4 36.4 - - -
----------------------------------------------------------------------
Net income/(loss) (72.6) 8.2 (27.8) (27.1) (25.9)
----------------------------------------------------------------------
($ / month)
----------------------------------------------------------------------
CCPU (3) 1 1 1 1 1
----------------------------------------------------------------------
(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
on equipment (handsets and accessories) sales unrelated to
customer acquisition. 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 to our investors 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 on
equipment (handsets and accessories) sales related to customer
acquisition for the specified period, divided by gross customers
added during the period. We believe that CPGA, which is a measure
of the cost of acquiring a customer, provides relevant and useful
information to our investors and is used by our management to
evaluate the operating performance of our business.
(5) 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
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) 2004 amounts exclude our investment to fund capital expenditures
in the network sharing joint venture with Cingular Wireless LLC
("Cingular"). 2005 amounts include capital expenditures in the
coverage areas previously served by the venture.
(7) 2004 amounts include sites in New York, California and Nevada
previously owned and operated by our network sharing joint
venture.
(8) 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.
T-MOBILE USA
Condensed Consolidated Balance Sheets
(dollars in millions)
(unaudited)
Sept. 30, Dec. 31,
2005 2004
----------- --------
ASSETS
Current assets:
Cash and cash equivalents...................$ 203 $ 182
Accounts receivable, net of allowance for
doubtful accounts of $156 and $158,
respectively............................... 1,991 1,657
Inventory................................... 355 444
Other current assets........................ 432 2,818
----------- --------
2,981 5,101
Property and equipment, net of accumulated
depreciation of $4,975 and $3,247, respectively. 10,368 6,718
Goodwill......................................... 10,704 10,704
Spectrum licenses................................ 11,502 11,087
Other intangible assets, net of accumulated
amortization of $278 and $791, respectively..... 295 35
Investments in and advances to unconsolidated
affiliates...................................... 5 1,203
Other assets and investments..................... 211 212
----------- --------
$ 36,066 $ 35,060
=========== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable............................$ 864 $ 615
Accrued liabilities......................... 1,137 1,002
Loss provision on network transaction....... - 792
Deferred revenue............................ 357 335
Current portion of deferred tax liability... 22 -
Current portion of capital lease............ 1 1
Construction accounts payable............... 562 438
Current portion of long-term notes payable
to affiliates.............................. - 2,505
Total current liabilities............... 2,943 5,688
Long-term notes payable to affiliates............ 6,473 5,127
Deferred tax liabilities......................... 3,157 3,096
Other long-term liabilities...................... 1,725 395
----------- --------
Total long-term liabilities other
than shares............................ 11,355 8,618
Voting preferred stock........................... 5,000 5,000
----------- --------
Total long-term liabilities......$ 16,355 $ 13,618
----------- --------
Minority interest in equity of consolidated
subsidiaries 62 18
Commitments and contingencies
Shareholder's equity:
Common stock................................ 39,452 39,433
Deferred stock compensation................. - (3)
Accumulated deficit......................... (22,746) (23,694)
----------- --------
Total shareholder's equity.............. 16,706 15,736
----------- --------
$ 36,066 $ 35,060
========= ========
T-MOBILE USA
Condensed Consolidated Statements of Operations
(dollars in millions)
(unaudited)
Quarter Ended Quarter Ended
September 30, September
2005 30,2004
-----------------------------
Revenues:
Postpay.................................. $2,832 $2,370
Prepaid................................ 182 144
Roaming and other services............. 139 98
Equipment sales........................ 414 388
Affiliate and other.................... 235 35
-----------------------------
Total revenues...................... 3,802 3,035
-----------------------------
Operating expenses:
Network................................ 735 556
Cost of equipment sales................ 648 573
General and administrative............. 596 496
Customer acquisition................... 657 622
Depreciation and amortization.......... 558 295
-----------------------------
Total operating expenses............ 3,194 2,542
-----------------------------
Operating income......................... 608 493
Other income (expense):
Interest expense....................... (112) (175)
Equity in net losses of unconsolidated
affiliates............................ 1 (34)
Interest income and other, net......... 5 -
-----------------------------
Total other income (expense)........... (106) (209)
-----------------------------
Income before income taxes............... 502 284
Income tax expense....................... (44) (30)
-----------------------------
Net income............................... $ 458 $ 254
=============================
T-MOBILE USA
Condensed Consolidated Statements of Cash Flows
(dollars in millions)
(unaudited)
Quarter Ended Quarter Ended
September 30, September 30,
2005 2004
----------------------------
Operating activities:
Net income............................... $ 458 $ 254
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 558 295
Income tax expense..................... 44 30
Amortization of debt discount and
premium, net.......................... (9) (7)
Equity in net losses of unconsolidated
affiliates............................ (1) 34
Stock-based compensation............... 1 1
Allowance for bad debts................ (7) (2)
Deferred rent.......................... 6 -
Other, net............................. (21) (8)
Changes in operating assets and
liabilities:
Accounts receivable.................. (35) (122)
Inventory............................ (98) (218)
Other current assets................. 56 6
Accounts payable..................... 4 76
Accrued liabilities.................. 98 278
---------- -----
Net cash provided by operating
activities.......................... 1,054 617
---------- -----
Investing activities:
Purchases of property and equipment...... (585) (453)
Investments in and advances to
unconsolidated affiliates, net.......... - (244)
---------- -----
Net cash used in investing activities.... (585) (697)
---------- -----
Financing activities:
Long-term debt repayments................ (500) -
Long-term debt borrowings from
affiliates, net......................... - 277
Change in minority interest.............. 22 -
Book overdraft........................... 8 (211)
---------- -----
Net cash (used in) / provided by
financing activities................... (470) 66
---------- -----
Change in cash and cash equivalents....... (1) (14)
Cash and cash equivalents, beginning of
period................................... 204 122
---------- -----
Cash and cash equivalents, end of period.. $ 203 $ 108
========== =====
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 (refer
to footnote 2 of the Selected Data Table for the quarterly impacts
of the cumulative operating lease adjustment):
YTD Q3 Q2 Q1 YTD Q3
2005 2005 2005 2005 2004 2004
----------------------------------------------
OIBDA $3,073 $1,166 $1,081 $826 $1,997 $788
Depreciation and
amortization (1,662) (558) (585) (519)(1,008) (295)
----------------------------------------------
Operating income $1,411 $608 $496 $307 $989 $493
==============================================
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:
YTD Q3 Q2 Q1 YTD Q3
2005 2005 2005 2005 2004 2004
------------------------------------------
Customer acquisition
costs $2,036 $657 $668 $711 $1,938 $622
Plus: Subsidy loss
Equipment sales (1,050) (414) (305) (331)(1,067) (388)
Cost of equipment
sales 1,884 648 575 661 1,594 573
------------------------------------------
Total subsidy loss 834 234 270 330 527 185
------------------------------------------
Less: Subsidy loss
unrelated to customer
acquisition (458) (133) (153) (172) (228) (100)
------------------------------------------
Subsidy loss related
to customer
acquisition 376 101 117 158 299 85
------------------------------------------
Cost of acquiring
customers $2,412 $758 $785 $869 $2,237 $707
==========================================
CPGA ($ / new
customer added) $310 $271 $310 $357 $315 $301
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 (refer to footnote 2 of the Selected Data
Table for the quarterly impacts of the cumulative operating lease
adjustment):
YTD Q3 Q2 Q1 YTD Q3
2005 2005 2005 2005 2004 2004
----------------------------------------------
Network costs $2,134 $735 $718 $681 $1,540 $556
General and
administrative 1,726 596 572 558 1,372 496
----------------------------------------------
Total network and
general and
administrative costs 3,860 1,331 1,290 1,239 2,912 1,052
Plus: Subsidy loss
unrelated to customer
acquisition 458 133 153 172 228 100
----------------------------------------------
Total cost of
serving customers $4,318 $1,464 $1,443 $1,411 $3,140 $1,152
==============================================
CCPU ($ / customer
per month) $26 $25 $26 $26 $24 $24
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