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iPhone’s Carrier Competitors: T-Mobile

Posted on Monday, Aug 27th 2007

In this post, I will look at T-Mobile with respect to the iPhone and AT&T. T-Mobile USA is the US operating unit of T-Mobile International AG & Co., the mobile communications segment of Deutsche Telekom.

Deutsche Telekom AG & Co. K.G. (NYSE: DT) is one of the leading telecommunications and information technology service providers in the world with net revenue of €61.3 billion in 2006. Its business is organized into three strategic business areas: Broadband/Fixed Network, Mobile Communications, and Business Customers. T-Mobile International is one of the world’s leading companies in mobile communications with about 112 million customers worldwide. It has a strong presence in Germany, the United States, the United Kingdom, the Netherlands, Austria, the Czech Republic, Hungary, Slovakia, Croatia, Macedonia, and Montenegro.

For the second quarter of fiscal 2007, T-Mobile USA reported 857,000 net new customer additions taking its total customer count to 27 million. The net additions saw a decline of 12.5 % from 980,000 in the first quarter of 2007 and an increase of 39.8% from 613,000 in the second quarter of 2006. T-Mobile is the fourth largest carrier in the US after AT&T, Verizon, and Sprint in terms of customers. However, its churn rate is 1.8%, better than Sprint’s 2.0% but higher than AT&T’s 1.6%.

For Q2 2007, Operating Income Before Depreciation and Amortization (OIBDA) was $1.39 billion, up 14.5% compared to the second quarter of 2006. Average Revenue Per User (ARPU) was $53, up from $52 in the year-ago period and resulted in the increase of service revenues to $4.20 billion. Total revenues, including service, equipment, and Other Revenues were $4.78 billion in Q2 2007, up from $4.55 billion in Q1 2007 and $4.21 billion in Q2 2006.

In 2005, the network sharing venture with Cingular (now AT&T) was dissolved and the ongoing migration of Cingular’s customers to its own network has affected its Other Revenues, which have come down from $177 million in Q2 2006 to $89 million in Q2 2007.

T-Mobile is quite vulnerable to the effect of the iPhone, with most of it users in the 18-24 age group. The iPhone is bound to be a hit amongst this age group and the new generation and could hit T-Mobile hard. However, with reports pouring in of a deal with iPhone in Germany, its stock is doing well, ranging between $17-19, mostly looking upwards in the last 5 days. However, as is the case with all Apple deals, nothing is official yet, but the report says Apple would be launching the iPhone with T-Mobile in Germany, Orange in France and O{2 }in the UK. With such a deal with Apple, T-Mobile could compensate for its potential loss in the US. The cost of the phone for the German market is said to be 450 euros (US $612) and would start selling from Nov 1, 2007.

The German market seems to be reaching 100% in terms of cellular phone penetration, and ARPUs are declining. Carriers are looking for data services, and the iPhone’s widely touted web browsing capabilities may open the doors for introducing highly profitable value added services. Looks like, T-Mobile has won the ticket to leverage this opportunity. Germany is also a wealthy consumer base, and well-aligned with the iPhone’s primary target demographic that includes a design-sensitive audience.

It’s interesting to watch Apple building relationships with various carriers across the world, and over the next 5 years, they should be well-positioned to work with multiple carriers in each geography. As a new entrant to the cell phone business, it is remarkable how they have managed to put the carriers in a scrambling mode, all wanting to work with them. Those carriers that have won key geographies would certainly have a leg up in understanding the convergence device movement, and T-Mobile is one of them.

Deutsche Telekom AG (DT)

This segment is a part in the series : iPhone’s Carrier Competitors

. Verizon
. Sprint
. T-Mobile

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