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T-Mobile USA revenues slip, contract customers continue to flee in Q3

Updated Dec 19th, 2018 7:35PM EST
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T-Mobile USA on Thursday announced its results for the third quarter of 2011. The carrier said it added 126,000 net customers during the quarter, an improvement over the net loss of 50,000 customers it reported during the second quarter, but fewer than the 137,000 new customers it added during the same quarter last year. Contract customers continued to flee, however, as T-Mobile reported a net loss of 186,000 contract customers for the quarter. The carrier lost 281,000 contract customers during the second quarter but just 64,000 during the same quarter last year. The number of smartphone customers increased 40% from the same time period last year, however, and T-Mobile now has 10.1 million customers using smartphones on its network. Read on for more.

T-Mobile’s service revenues totalled $4.67 billion in the third quarter, down from the $4.71 billion during the third quarter last year, and the carrier attributed the decline to contract customer losses. Total revenues for the quarter were $5.2 billion, up from $5.1 billion reported last quarter but down from the $5.4 billion reported during the third quarter of 2010.

The introduction of new “unlimited Value Plans” and new cost management programs helped propel the company’s operating income before depreciation and amortization (OIBDA). OIBDA increased 13% from the second quarter to $1.45 billion. The carrier’s blended churn, which includes contract and prepaid customers, increased from 3.3% during the second quarter to 3.5%. T-Mobile USA’s full press release follows below.

T-Mobile USA Reports Third Quarter of 2011 Results

Adjusted OIBDA of $1.45 billion in the third quarter of 2011, an increase of 13% from the second quarter of 2011 and 9% from the third quarter of 2010, largely due to the introduction of new unlimited Value plans and cost management programs

BELLEVUE, Wash., Nov 10, 2011 (BUSINESS WIRE) — –Adjusted OIBDA margin of 31% in the third quarter of 2011, up from 28% in the second quarter of 2011 and third quarter of 2010

–Service revenues of $4.67 billion in the third quarter of 2011, up 1.0% from the second quarter of 2011 but down 0.9% from the third quarter of 2010

–Net customer additions of 126,000 related to Value plan and unlimited Monthly 4G prepaid growth, compared to a net customer loss in the second quarter of 2011 of 50,000 and 137,000 net customer additions in the third quarter of 2010

–Contract ARPU of $53 in the third quarter of 2011, consistent with $53 in the second quarter of 2011 and up from $52 in the third quarter of 2010 attributed in part to data ARPU growth

–Data ARPU of $14.00 in the third quarter of 2011, up 13% from $12.40 in the third quarter of 2010

–As of the end of the third quarter of 2011, 10.1 million customers were using 3G/4G smartphones, up 40% compared to 7.2 million as of the end of the third quarter of 2010

T-Mobile USA, Inc. (“T-Mobile USA”) today reported third quarter 2011 service revenues of $4.67 billion, slightly down from $4.71 billion in the third quarter of 2010, and adjusted OIBDA of $1.45 billion, up from $1.32 billion reported in the third quarter of 2010. Additionally, net customer additions were 126,000 in the third quarter of 2011, a 176,000 improvement from net customer losses in the second quarter of 2011 of 50,000 and slightly down from 137,000 net customer additions in the third quarter of 2010.

“Earnings improved as we continued to focus on making smartphones affordable to all Americans through our unlimited Value plans, improvements to our 4G network, and an expanding portfolio of 4G devices,” said Philipp Humm, President and CEO of T-Mobile USA. “Attractive prepaid offerings helped us add customers in the third quarter of 2011 and data ARPU grew as smartphone adoption continued to increase. Discipline on the cost side contributed to year-on-year margin improvement, while postpay churn, in particular related to the iPhone 4S launches by competitors, will continue to be an area of concern.”

“I am pleased with the development of adjusted OIBDA in the third quarter of 2011. The increase, partly thanks to successful cost saving initiatives, is a positive sign in a still challenging environment,” said Rene Obermann, CEO of Deutsche Telekom.

Total Customers

— T-Mobile USA served 33.7 million customers (as defined in Note 1 to the Selected Data, below) at the end of third quarter of 2011, compared to 33.6 million customers at the end of second quarter 2011 and 33.8 million customers at the end of third quarter 2010.

— Third quarter 2011 net customer additions of 126,000, compared to a net customer loss in the second quarter of 2011 of 50,000, and net customer additions of 137,000 in the third quarter of 2010. — During the second and third quarters of 2011, as part of T-Mobile USA’s strategy of providing simple, value-based customer offers, T-Mobile USA introduced new unlimited Value plans for individuals, families and businesses, which resulted in improvement in net contract customer losses during the quarter.

— The quarter-over-quarter improvement in net customer additions was driven by improvements in both contract and prepaid gross additions resulting from the introduction of unlimited Value plans discussed above and growth of prepaid unlimited Monthly 4G plans. This growth may be impacted in the fourth quarter of 2011 due to competitor launches of the iPhone 4S.

Contract Customers

— Contract net customer losses, including connected devices (as defined in Note 1 to the Selected Data, below), were 186,000 in the third quarter of 2011, an improvement from 281,000 net contract customer losses in the second quarter of 2011. Net contract customer losses were 54,000 in the third quarter of 2010.

— Branded contract net customer losses, excluding connected devices, were 389,000 in the third quarter of 2011, an improvement of 147,000 net branded contract customer losses from 536,000 in the second quarter of 2011. Net branded contract customer losses improved 64,000 in the third quarter of 2010. — Sequentially, the improvement in net contract customer losses was driven primarily by higher gross additions related to the new unlimited Value plans.

— The year-over-year change was primarily due to fewer branded contract gross customer additions resulting in part from the implementation of strengthened credit standards as an aspect of T-Mobile USA’s focus on improving the overall quality of its contract customer base. Additionally, customer migrations from prepaid products as a result of the strategic phase out of certain hybrid plans contributed to the year-on-year growth in net branded contract customers.

— Connected device net customer additions were 204,000 in the third quarter of 2011 compared to 256,000 in the second quarter of 2011 and 271,000 in the third quarter of 2010. Connected device customers, which have significantly lower ARPUs (averaging less than $2) than other contract customers, totaled 2.5 million at September 30, 2011.

Prepaid Customers

— Prepaid net customer additions, including MVNO customers (as defined in Note 1 to the Selected Data, below), were 312,000 in the third quarter of 2011, an improvement from 231,000 net prepaid customer additions in the second quarter of 2011, and 190,000 net prepaid customer additions in the third quarter of 2010.

— Branded prepaid net customer additions, excluding MVNO customers, were 254,000 in the third quarter of 2011, up 325,000 from second quarter 2011 branded prepaid net customer losses of 71,000, and improved by 333,000 from 79,000 net branded prepaid customer losses in the third quarter of 2010. — The sequential and year-on-year growth in branded prepaid net customer additions was due primarily to growth in unlimited Monthly 4G prepaid plans.

— MVNO customers increased slightly in the third quarter of 2011, totaling 3.5 million as of September 30, 2011. In the third quarter of 2011, net MVNO customer growth was lower compared to the second quarter of 2011 and the third quarter of 2010 due to higher MVNO customer churn.

Churn

— Blended churn (as defined in Note 3 to the Selected Data, below), reflecting both contract and prepaid customers, increased to 3.5% in the third quarter of 2011, up from 3.3% in the second quarter of 2011 and 3.4% in the third quarter of 2010. — The sequential and year-on-year increase in blended churn was primarily driven by higher churn from MVNO customers.

— Churn from branded customers was 3.2% in the third quarter of 2011, consistent with the second quarter of 2011, and an improvement from 3.4% in the third quarter of 2010. The year-on-year decrease was primarily due to improvement in branded prepaid churn as a result of unlimited Monthly 4G prepaid plans.

— Contract churn, including connected devices, was 2.4% in the third quarter of 2011, consistent with the second quarter of 2011 and the third quarter of 2010. — To address contract churn, T-Mobile USA continued to focus on loyalty efforts during the quarter, including re-contracting its most loyal customers.

— Prepaid churn, including MVNO, increased to 7.2% in the third quarter of 2011, from 6.6% in the second quarter of 2011 and was consistent with the third quarter of 2010. — The sequential increase in prepaid churn was driven primarily by higher MVNO deactivations.

Adjusted OIBDA and Net Income

— T-Mobile USA reported Adjusted OIBDA (as defined in Note 8 to the Selected Data, below) of $1.45 billion in the third quarter of 2011, compared to $1.28 billion in the second quarter of 2011 and $1.32 billion in the third quarter of 2010. — Adjusted OIBDA in the third quarter of 2011 and the second quarter of 2011 excludes AT&T transaction-related costs of $51 million and $13 million, respectively, primarily consisting of employee-related expenses.

— Sequentially and year-on-year, adjusted OIBDA increases were due to lower losses related to equipment subsidies resulting from the launch of the unlimited Value plans, as described below. Third quarter 2011 operating expenses, excluding the cost of equipment sales, remained fairly consistent sequentially and year-on-year as cost savings programs in 2011 have been effective in controlling expense growth. Additionally, during the third quarter of 2011, adjusted OIBDA increased due to a settlement related to the discontinued retail partnership with RadioShack.

— T-Mobile USA’s new unlimited Value plans, allow customers to subscribe to wireless services without the purchase of or upfront payment for a bundled handset, resulting in reduced costs per gross addition and subscriber retention costs, benefitting adjusted OIBDA and net income within the quarter. Qualifying customers may separately purchase handsets at any time, either deferring payments over 21-month installment contracts or paying the full price at point-of-sale. Compared to traditional bundled price plans, the new unlimited Value plans result in lower service revenues being recognized over the service contract period, while recognizing higher equipment revenues at the time of the sale.

— Adjusted OIBDA margin (as defined in Note 9 to the Selected Data, below) was 31% in the third quarter of 2011, up from 28% in both the second quarter of 2011 and the third quarter of 2010. — Sequentially and year-on-year OIBDA margin improved primarily due to the reductions in costs per gross addition in connection with the new unlimited Value plans, as described above.

— Net income in the third quarter of 2011 was $332 million, up 57% compared to $212 million in the second quarter of 2011 and up 4% from the $320 million reported in the third quarter of 2010. — Sequentially and year-on-year, the changes in net income were driven by the factors impacting adjusted OIBDA, as described above. Expenses related to the AT&T transaction, primarily consisting of employee-related costs, totaled $51 million during the third quarter of 2011 and $13 million in the second quarter of 2011. Additionally, fair value adjustments to certain of T-Mobile USA’s financial instruments impacted Other expense, net, contributing to the changes in net income.

Revenue

— Service revenues (as defined in Note 4 to the Selected Data, below) were $4.67 billion in the third quarter of 2011, up from $4.62 billion in the second quarter of 2011, but down 0.9% from $4.71 billion in the third quarter of 2010. — Service revenues in the third quarter of 2011 increased compared to the second quarter of 2011 principally due to the growth in customer adoption of T-Mobile USA’s unlimited Monthly 4G plans. Additionally, the sequential increase in service revenues was due in part to the introduction of reconnect fees for certain delinquent customer accounts.

— Year-on-year, quarterly service revenues decreased primarily due to contract customer losses, which were partially offset by the increased adoption of data plans in the contract and prepaid customer base and from T-Mobile USA directly providing handset insurance services to its customers.

— Service and Sales revenues (as defined in Note 13 to the Selected Data, below) were $5.2 billion in the third quarter of 2011, up from $5.0 billion in the second quarter of 2011, but decreased slightly from $5.3 billion in the third quarter of 2010. — Service and Sales revenues increased from the second quarter of 2011 largely due to handset pricing changes in connection with the introduction of T-Mobile USA’s new unlimited Value plans.

— Compared to the third quarter of 2010, Service and Sales revenues decreased slightly due primarily to lower handset sales volumes, which were partially offset by handset pricing changes in connection with the introduction of T-Mobile USA’s new unlimited Value plans.

— Total revenues, including service, equipment sales, and other revenues were $5.2 billion in the third quarter of 2011, up from $5.1 billion in the second quarter of 2011, but down from $5.4 billion in the third quarter of 2010. — Compared to the second quarter of 2011 and third quarter of 2010, total revenues changed due primarily to the changes in equipment sales revenues as described above.

— Other revenues increased compared to the second quarter of 2011 and the third quarter of 2010 due in part to a settlement related to the discontinued retail partnership with RadioShack in the third quarter of 2011.

ARPU

— Blended Average Revenue Per User (“ARPU” as defined in Note 4 to the Selected Data, below) was $46 in the third quarter of 2011, consistent with each of the three preceding quarters but down from $47 in the third quarter of 2010.

— Contract ARPU, including connected devices, was $53 in the third quarter of 2011, consistent with the second quarter of 2011 and up from $52 in the third quarter of 2010. — Year-on-year, contract ARPU increased as data revenue growth more than offset lower voice revenue. Also contributing to the increase in contract ARPU was higher handset insurance contract revenues due to the launch of the directly-provided T-Mobile USA Personal Handset Protection insurance and warranty program in the fourth quarter of 2010.

— Prepaid ARPU, including MVNO, was $18 in the third quarter of 2011, consistent with the second quarter of 2011 but down from $19 in the third quarter of 2010. — Quarter-on-quarter, prepaid ARPU remained consistent as growth in unlimited Monthly 4G prepaid was offset by the strategic phase out of the FlexPay no-contract product.

— Year-on-year, prepaid ARPU decreased due to the shift in customer mix away from FlexPay no-contract customers.

— Data service revenues (as defined in Note 4 to the Selected Data, below) were $1.4 billion in the third quarter of 2011, up 12% from the third quarter of 2010. Data service revenues in the third quarter of 2011 represented 30% of blended ARPU, or $14.00 per customer, compared to 30% of blended ARPU, or $13.60 per customer in the second quarter of 2011, and 27% of blended ARPU, or $12.40 per customer in the third quarter of 2010. — In the third quarter of 2011, the increase in the number of customers using smartphones, along with T-Mobile USA’s continued upgrading of its 3G and 4G networks helped drive Internet access revenue growth through the increased customer adoption of mobile broadband data plans.

— 10.1 million customers were using smartphones enabled for the T-Mobile USA 3G/4G network (as defined in Note 12 to the Selected Data, below) such as the T-Mobile(R) Sidekick(R) 4G, the HTC(R) Sensation(TM) 4G, and the T-Mobile(R) myTouch(TM) 4G Slide, at the end of the third quarter of 2011. This represents a net increase of 40% or 2.9 million customers using smartphones from the third quarter of 2010.

— 3G/4G smartphone customers now account for 30% of total customers, up from 29% in the second quarter of 2011 and 21% in the third quarter of 2010.

— Messaging revenue (as described in Note 5 to the Selected Data, below) continued to be an important component of data service revenues. Messaging accounted for approximately 32% of total data revenues in the third quarter of 2011, compared to 35% in the second quarter of 2011 and 36% in the third quarter of 2010.

CPGA and CCPU

— The average cost of acquiring a customer, Cost Per Gross Add (“CPGA” as defined in Note 7 to the Selected Data, below) was $260 in the third quarter of 2011, down from $320 in the second quarter of 2011 and $290 in the third quarter of 2010. — Sequentially and year-on-year, CPGA decreased in the third quarter of 2011 due primarily to lower handset subsidies as a result of T-Mobile USA’s new unlimited Value plans, which do not bundle subsidized handsets as in traditional wireless service contracts.

— The average cash cost of serving customers, Cash Cost Per User (“CCPU” as defined in Note 6 to the Selected Data, below), was $23 per customer per month in the third quarter of 2011, consistent with the second quarter of 2011, but down from $24 in the third quarter of 2010.

Capital Expenditures

— Cash capital expenditures (as defined in Note 10 to the Selected Data, below) were $741 million in the third quarter of 2011, compared to $688 million in the second quarter of 2011 and $643 million in the third quarter of 2010. — Sequentially and year-on-year, the increase in cash capital expenditures was a result of payment timing differences. In the third quarter of 2011, incurred capital expenditures remained generally consistent with the second quarter of 2011 and the third quarter of 2010 as a result of the continued build-out of the HSPA+ 21 and HSPA+ 42 networks (as defined in Note 11 to the Selected Data, below).

— To further improve the value provided to customers through its 4G mobile broadband network, T-Mobile USA has continued to invest in its HSPA+ 42 network, which reached over 170 million people as of the end of the third quarter of 2011, doubling the theoretical speed of its 4G network to 42 Mbps.

T-Mobile USA Recent Highlights

— On March 20, 2011, Deutsche Telekom AG and AT&T Inc. entered into a definitive agreement under which AT&T will acquire T-Mobile USA from Deutsche Telekom in a cash and stock transaction valued at approximately $39 billion, subject to adjustment in accordance with the agreement. The agreement has been approved by the Board of Directors of both companies, and is expected to provide an optimal combination of network assets to add capacity and provide an opportunity to improve network quality in the near term for the customers of both companies. In particular, the transaction is important to address spectrum constraints and gives T-Mobile USA customers a clear path to take advantage of new generation LTE (Long Term Evolution) services. As part of the transaction, Deutsche Telekom will receive an equity stake in AT&T that, based on the terms of the agreement, would give Deutsche Telekom an ownership interest in AT&T of approximately 8 percent and one seat on the AT&T Board of Directors. In the third quarter of 2011, the U.S. Department of Justice (DOJ) filed a complaint in the Federal District Court of Washington, D.C. to block the acquisition. Deutsche Telekom and AT&T continue to pursue the acquisition, with a trial date on the DOJ’s complaint set for mid-February 2012. Deutsche Telekom anticipates closing the transaction in the first half of 2012.

— During the third quarter of 2011, T-Mobile USA introduced new unlimited Value plans. In August 2011, T-Mobile USA launched new Small Business Rate Plans, reinforcing the Company’s focus on support of small business to make it more affordable for customers to experience America’s Largest 4G Network. These plans include offerings of unlimited talk, text and data services.

— T-Mobile USA continues to unveil cutting edge devices including 42 Mbps-capable smartphones such as the HTC(R) Amaze(TM) 4G and the Samsung Galaxy S(TM) II.

— On August 15, 2011, T-Mobile USA earned the highest ranking in the J.D. Power and Associates 2011 United States Full-Service Wireless Purchase Experience Study(SM) — Volume 2, the fifth consecutive highest ranking for T-Mobile USA in that study. On September 15, 2011, J.D. Powers and Associates ranked T-Mobile USA second highest in the Southwest and West Regions and tied for second highest in the Northeast and Mid-Atlantic Regions in their 2011 Wireless Network Quality Performance Study(SM) — Volume 2.

— During the third quarter of 2011, T-Mobile USA leveraged changes in retail distribution through new retail partnerships focused on new distribution opportunities. In line with this strategy, T-Mobile USA partnered with 7-Eleven Inc., Toys R Us and Family Dollar to begin offering a no-contract wireless product in these companies’ retail locations. On July 26, 2011, T-Mobile USA and RadioShack discontinued their retail partnership.

— During the third quarter of 2011, T-Mobile USA announced the rollout of a new global design for nearly 400 new and remodeled stores across the country in an ongoing commitment to provide the ultimate customer experience to consumers.

T-Mobile USA is the U.S. wireless operation of Deutsche Telekom AG (otcqx:DTEGY). In order to provide comparability with the results of other US wireless carriers, all financial amounts are in US dollars 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 as presented there differ from the information contained herein as, among other things, Deutsche Telekom reports financial results in Euros and in accordance with International Financial Reporting Standards (IFRS).

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.

                                                           SELECTED DATA FOR T-MOBILE USA
        (thousands)                                                    Q3 2011     Q2 2011     Q1 2011     Full Year    Q4 2010     Q3 2010
                                                                                                             2010
                                                                     ---------   ---------   ---------   ----------   ---------   ---------
        Customers, end of period(2)
          Total Branded Contract Customers                           23,074      23,463      23,999      24,574       24,574      24,938
          Total Connected Devices                                     2,525       2,321       2,065       1,873        1,873       1,761
                                                                     ------      ------      ------      ------       ------      ------
        Total Contract Customers                                     25,598      25,784      26,065      26,447       26,447      26,698
                                                                     ------      ------      ------      ------       ------      ------
          Branded Prepaid Customers                                   4,599       4,345       4,416       4,497        4,497       4,643
          MVNO Customers                                              3,514       3,456       3,154       2,790        2,790       2,415
                                                                     ------      ------      ------      ------       ------      ------
        Total Prepaid Customers                                       8,113       7,801       7,570       7,287        7,287       7,059
                                                                     ------      ------      ------      ------       ------      ------
        Total T-Mobile USA Customers, end of period                  33,711      33,585      33,635      33,734       33,734      33,757
                                                                     ======      ======      ======      ======       ======      ======
          Thereof, Branded Customers                                 27,673      27,808      28,415      29,071       29,071      29,581
        Net customer additions/(losses)(2)
          Total Branded Contract Customers                             (389)      (536)      (574)    (1,069)       (364)      (325)
          Total Connected Devices                                       204         256         192         751          113         271
                                                                     ------      ------      ------      ------       ------      ------
        Total Contract Customers                                       (186)      (281)      (382)      (318)       (251)       (54)
                                                                     ------ ---  ------ ---  ------ ---  ------ ----  ------ ---  ------ ---
          Branded Prepaid Customers                                     254         (71)       (82)      (513)       (145)       (79)
          MVNO Customers                                                 57         302         365         775          374         269
                                                                     ------      ------      ------      ------       ------      ------
        Total Prepaid Customers                                         312         231         283         262          229         190
                                                                     ------      ------      ------      ------       ------      ------
        Total T-Mobile USA net customer additions/(losses)              126         (50)       (99)       (56)        (23)       137
                                                                     ======      ====== ===  ====== ===  ====== ====  ====== ===  ======
          Thereof, Branded net customer additions/(losses)             (135)      (608)      (656)    (1,582)       (509)      (404)
        Note: Certain customer numbers may not add due to rounding.
        Minutes of use/contract customer/month(2)                       990         990       1,020       1,100        1,050       1,080
        Contract churn(3)                                              2.40 %      2.40 %      2.40 %      2.30 %       2.50 %      2.40 %
        Branded churn(3)                                               3.20 %      3.20 %      3.30 %      3.20 %       3.40 %      3.40 %
        Blended churn(3)                                               3.50 %      3.30 %      3.40 %      3.40 %       3.60 %      3.40 %
        ($)
        Service and Sales Revenues per customer(13)                      51          50          51          52           52          53
        ARPU (blended)(4)                                                46          46          46          46           46          47
        ARPU (contract)(4)                                               53          53          52          52           52          52
        ARPU (prepaid)(4)                                                18          18          18          19           19          19
        Data ARPU (blended)(5)                                        14.00       13.60       13.10       11.90        12.80       12.40
        Cost of serving (CCPU)(6)                                        23          23          25          23           24          24
        Cost per gross add (CPGA)(7)                                    260         320         300         300          290         290
        ($ millions)
        Total revenues                                                5,228       5,050       5,161      21,347        5,363       5,350
        Total Service and Sales Revenues(13)                          5,151       5,000       5,117      21,137        5,306       5,307
        Service revenues(4)                                           4,666       4,620       4,630      18,733        4,694       4,708
        Adjusted OIBDA(8)                                             1,445       1,277       1,188       5,478        1,342       1,323
        Adjusted OIBDA margin(9)                                         31 %        28 %        26 %        29 %         29 %        28 %
        Capital expenditures(10)                                        741         688         749       2,819          828         643

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. A customer is defined as a SIM card with a unique T-Mobile USA mobile identity number which generates revenue. Branded contract customers and prepaid customers include FlexPay customers depending on the type of rate plan selected. FlexPay customers with a contract are included in branded contract customers, and FlexPay customers without a contract are included in branded prepaid customers. Additionally, connected devices (also known as machine-to-machine customers) are included within contract customers, some of which may not have monthly recurring charges required under contract. Mobile virtual network operators (MVNO) are classified as prepaid customers as they most closely align with this customer segment.

2. Prior quarter amounts have been restated to conform to current period customer reporting classifications.

3. Churn is defined as the number of customers whose service was discontinued, expressed as a rounded monthly percentage of the average number of customers during the specified period. We believe that churn, which is a measure of customer retention and loyalty, provides relevant and useful information and is used by our management to evaluate the operating performance of our business.

4. Average Revenue Per User (“ARPU”) represents the average monthly service revenue earned from 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 and rounding to the nearest dollar. We believe ARPU provides management with useful information to evaluate the revenues generated from our customer base.

Service revenues include contract, prepaid, and roaming and other service revenues, and do not include equipment sales and other revenues. Data services revenues (including messaging and non-messaging revenue) are a non-GAAP financial measure and are included in the various components of service revenues. Handset insurance revenues are included in contract service revenues beginning the fourth quarter of 2010 as the Company began directly providing handset insurance services which had previously been provided by a third party.

5. Data ARPU is defined as total data revenues divided by average total customers during the period, rounded to the nearest ten cents. Total data revenues include data revenues from contract customers, prepaid customers, Wi-Fi revenues and data roaming revenues. The relative value of data revenues from bundled unlimited voice and data plans (including a relative value for messaging and non-messaging data revenue) are included in total data revenues.

6. 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 unrelated to customer acquisition. Subsidy loss unrelated to customer acquisition includes upgrade and insurance claim handset costs offset by upgrade equipment revenues and other related direct costs. 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 before rounding to the nearest dollar. We believe that CCPU, which is a measure of the costs of serving a customer, provides relevant and useful information and is used by our management to evaluate the operating performance of our business.

7. 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 related to customer acquisition for the specified period, by gross customers added during the period and then rounded to the nearest ten dollars. Subsidy loss related to customer acquisition consists primarily of the excess of handset and accessory costs over related revenues incurred to acquire new customers. We believe that CPGA, which is a measure of the cost of acquiring a customer, provides relevant and useful information and is used by our management to evaluate the operating performance of our business.

8. Operating Income Before Interest, Depreciation and Amortization (“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 business by 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. OIBDA was adjusted in the third quarter of 2011 to exclude AT&T transaction-related costs that are not reflective of our ongoing operating performance.

9. Adjusted OIBDA margin is a non-GAAP financial measure, which we define as adjusted OIBDA (as described in Note 8 above) divided by service revenues.

10. Capital expenditures consist of amounts paid for construction and purchase of property and equipment.

11. High speed packet access plus (HSPA+ 21) and HSPA+ 42 technology offers customers a 4G experience, including data speeds comparable to other 4G network speeds currently available to mobile device users in the United States.

12. Smartphones are defined as UMTS/HSPA/HSPA+ 21/HSPA+ 42 enabled converged devices, which integrate voice and data services.

13. Service and Sales revenues per customer is a non-GAAP financial measure, which we define as service and sales revenue divided by average total customers during the period. We believe that service and sales revenues per customer provide management with useful information about average monthly revenues generated by wireless customers.

Service and sales revenues include all service revenues and equipment sales from customers and third party distributors and wholesalers.

                                                         T-MOBILE USA
                                             Condensed Consolidated Balance Sheets
                                                     (dollars in millions)
                                                          (unaudited)
                                         ASSETS                                     September 30,      December 31,
        Current assets:                                                                 2011               2010
                                                                                 ------------------ ------------------
          Cash and cash equivalents                                                 $     421          $     109
          Receivables from affiliates                                                     912                310
          Accounts receivable, net of allowances of $318 and $368, respectively         2,794              2,857
          Inventory                                                                       520                621
          Current portion of net deferred tax assets                                      926                914
          Other current assets                                                            621                500
                                                                                      -------            -------
            Total current assets                                                        6,194              5,311
        Property and equipment, net of accumulated depreciation of $15,313             12,898             13,213
        and $13,801, respectively
        Goodwill                                                                       12,044             12,044
        Spectrum licenses                                                              15,265             15,282
        Other intangible assets, net of accumulated amortization of $203                   73                113
        and $163, respectively
        Long-term investments and other assets                                            239                328
                                                                                      -------            -------
            Total assets                                                            $  46,713          $  46,291
                                                                                 ==== =======       ==== =======
                          LIABILITIES AND STOCKHOLDER'S EQUITY
        Current liabilities:
          Accounts payable and accrued liabilities                                  $   2,905          $   3,248
          Current payables to affiliates                                                  992                805
          Other current liabilities                                                       388                402
                                                                                      -------            -------
            Total current liabilities                                                   4,285              4,455
                                                                                      -------            -------
        Long-term payables to affiliates                                               15,170             15,854
        Deferred tax liabilities                                                        4,176              3,756
        Deferred rents and other long-term liabilities                                  1,994              1,734
                                                                                      -------            -------
            Total long-term liabilities                                                21,340             21,344
                                                                                      -------            -------
        Stockholder's equity:
          Common stock and additional paid-in capital                                  31,600             31,600
          Accumulated other comprehensive loss                                           (122)              (39)
          Accumulated deficit                                                         (10,390)          (11,069)
                                                                                      ------- ----       ------- ----
            Total T-Mobile USA stockholder's equity                                    21,088             20,492
                                                                                      -------            -------
            Total liabilities and stockholder's equity                              $  46,713          $  46,291
                                                                                 ==== =======       ==== =======
                                                              T-MOBILE USA
                                             Condensed Consolidated Statements of Operations
                                                          (dollars in millions)
                                                               (unaudited)
                                                                                Quarter Ended    Quarter Ended    Quarter Ended
                                                                                September 30,      June 30,       September 30,
                                                                                    2011             2011             2010
                                                                              -------------    -------------    -------------
        Revenues:
          Contract                                                               $ 4,087          $ 4,082          $ 4,150
          Prepaid                                                                    436              414              395
          Roaming and other services                                                 143              124              163
                                                                                   -----            -----            -----
        Service Revenues                                                           4,666            4,620            4,708
          Equipment sales                                                            485              380              599
                                                                                   -----            -----            -----
        Total Service and Sales Revenues                                           5,151            5,000            5,307
          Other                                                                       77               50               43
                                                                                   -----            -----            -----
             Total revenues                                                        5,228            5,050            5,350
                                                                                   -----            -----            -----
        Operating expenses:
          Network                                                                  1,249            1,248            1,258
          Cost of equipment sales                                                    873              881            1,085
          Customer acquisition                                                       795              787              800
          General and administrative                                                 866              857              884
          Depreciation and amortization                                              731              755              723
                                                                                   -----            -----            -----
             Total operating expenses (excl. AT&T transaction-related costs)       4,514            4,528            4,750
                                                                                   -----            -----            -----
        Adjusted operating income (excl. AT&T transaction-related costs)             714              522              600
        AT&T transaction-related costs                                                51               13                -
                                                                                   -----            -----            -----
        Operating income                                                             663              509              600
                                                                                   -----            -----            -----
        Other expense, net                                                          (137)           (156)            (79)
                                                                                   ----- ----       ----- ----       ----- ----
        Income before income taxes                                                   526              353              521
        Income tax expense                                                          (194)           (141)           (201)
                                                                                   ----- ----       ----- ----       ----- ----
        Net income                                                                   332              212              320
        Other comprehensive gain/(loss), net of tax:
                                                                                     (56)            (11)            (50)
          Unrealized (loss) on cash flow hedges and foreign currency
          translation
                                                                                      (1)              6                -
          Unrealized gain/(loss) on available-for-sale securities
                                                                                   ----- ----       -----            -----
        Total comprehensive income                                               $   275          $   207          $   270
                                                                              ==== =====       ==== =====       ==== =====
                                                          T-MOBILE USA
                                         Condensed Consolidated Statements of Cash Flows
                                                      (dollars in millions)
                                                           (unaudited)
                                                                       Quarter Ended     Quarter Ended    Quarter Ended
                                                                       September 30,       June 30,       September 30,
                                                                           2011              2011             2010
                                                                     --------------    -------------    --------------
        Operating activities:
        Net income                                                      $    332          $   212          $    320
        Adjustments to reconcile net income to net cash provided by
        operating activities:
            Depreciation and amortization                                    731              755               723
            Income tax expense                                               194              141               201
            Bad debt expense                                                 169              149               173
            AT&T transaction-related costs                                    51               13                 -
            Other, net                                                        (1)              4               (11)
            Changes in operating assets and liabilities:
              Accounts receivable                                           (320)           (122)            (251)
              Inventory                                                      (41)            169               (52)
              Other current and non-current assets                           (25)            (20)             (38)
              Accounts payable and accrued liabilities                       137             (114)             117
                                                                          ------            ----- ----       ------
                Net cash provided by operating activities                  1,227            1,187             1,182
                                                                          ------            -----            ------
        Investing activities:
            Purchases of property and equipment                             (741)           (688)            (643)
            Expenditures related to spectrum licenses                         (7)             (4)              (3)
            Short-term affiliate loan receivable, net                       (425)           (225)            (425)
            Other, net                                                        23               10               (10)
                                                                          ------            -----            ------ ----
                Net cash used in investing activities                     (1,150)           (907)          (1,081)
                                                                          ------ ----       ----- ----       ------ ----
        Financing activities:
           Debt borrowings from parent                                         -                -                 7
           Short-term borrowings, net                                          -              (33)               -
                                                                          ------            ----- ----       ------
                Net cash (used in) provided by financing activities            -              (33)               7
                                                                          ------            ----- ----       ------
        Change in cash and cash equivalents                                   77              247               108
        Cash and cash equivalents, beginning of period                       344               97                48
                                                                          ------            -----            ------
        Cash and cash equivalents, end of period                        $    421          $   344          $    156
                                                                     ==== ======       ==== =====       ==== ======
                                                                           T-MOBILE USA
                                                  Reconciliation of Non-GAAP Financial Measures to GAAP Financial
                                                                             Measures
                                                          (dollars in millions, except for CPGA and CCPU)
                                                                            (unaudited)
        Adjusted OIBDA is reconciled to operating income as follows:
                                                                                Q3 2011      Q2 2011      Q1 2011       Full         Q4 2010      Q3 2010
                                                                                                                        Year
                                                                                                                        2010
                                                                             ---------    ---------    ---------    ----------    ---------    ---------
           Adjusted OIBDA                                                     $ 1,445      $ 1,277      $ 1,188      $  5,478      $ 1,342      $ 1,323
           Depreciation and amortization                                         (731)       (755)       (735)      (2,773)       (729)       (723)
                                                                                ----- --     ----- --     ----- --     ------ --     ----- --     ----- --
           Adjusted operating income (excl. AT&T transaction-related costs)       714          522          453         2,705          613          600
                                                                                -----        -----        -----        ------        -----        -----
           AT&T transaction-related costs                                         (51)        (13)          -             -            -            -
                                                                                ----- --     ----- --     -----        ------        -----        -----
           Operating income                                                   $   663      $   509      $   453      $  2,705      $   613      $   600
                                                                             == =====     == =====     == =====     == ======     == =====     == =====

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:

                                                                         Q3 2011      Q2 2011      Q1 2011      Full        Q4 2010      Q3 2010
                                                                                                                Year
                                                                                                                2010
                                                                       --------    ---------    ---------    --------    ---------    ---------
        Customer acquisition costs                                      $  795      $   787      $   782     $  3,205     $   786      $   800
        Plus:
                       Subsidy loss
                       Equipment sales                                    (485)       (380)       (487)     (2,404)      (612)       (599)
                       Cost of equipment sales                             873          881        1,018        4,237       1,109        1,085
                                                                          ----        -----        -----       ------       -----        -----
                         Total subsidy loss                                388          501          531        1,833         497          486
        Less:                                                              237          240          319          926       258            232
                       Subsidy loss unrelated to customer acquisition
                                                                           151          261          212          907         239        254
                       Subsidy loss related to customer acquisition
                         Cost of acquiring customers                    $  946      $ 1,048      $   994     $  4,112     $ 1,025      $ 1,054
                                                                       == ====     == =====     == =====     = ======    == =====     == =====
                         CPGA ($/new customer added)                    $  260      $   320      $   300     $    300     $   290      $   290
                                                             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:
                                                                Q3 2011    Q2 2011    Q1 2011     Full      Q4 2010    Q3 2010
                                                                                                  Year
                                                                                                  2010
                                                              --------   --------   --------   --------   --------   --------
        Network costs                                           $ 1,249    $ 1,248    $ 1,253    $ 4,895    $ 1,219    $ 1,258
        General and administrative costs                            866        857        920      3,532        907        884
                                                                  -----      -----      -----      -----      -----      -----
        Total network and general and administrative costs        2,115      2,105      2,173      8,427      2,126      2,142
        Plus: Subsidy loss unrelated to customer acquisition        237        240        319        926        258        232
                                                                  -----      -----      -----      -----      -----      -----
             Total cost of serving customers                    $ 2,352    $ 2,345    $ 2,492    $ 9,353    $ 2,384    $ 2,374
                                                              === =====  === =====  === =====  === =====  === =====  === =====
             CCPU ($/customer per month)                        $    23    $    23    $    25    $    23    $    24    $    24