What's Behind T-Mobile USA's Big Bet on Google Phones

GTMO_12061_158079_v3.jpgA quick scan of T-Mobile USA’s second-quarter earnings report, released earlier this morning, makes clear why the company has been banging that marketing drum around the new Google Phone (aka MyTouch) and its 3G data services so loudly these days. It’s seeing its growth stall, its revenues slow to a crawl and — most importantly — its average revenue per user decline.

T-Mobile USA Q2 ScoreCard.
Revenues $5.34 billion
Net Income $425 million
Total Customers: 33.5 million
ARPU: $48
Data ARPU: $9.90

First let’s look at the second-quarter numbers. The most notable figure is the decline in net new customers, to 325,000 from 415,000 in the first quarter of 2009 and 668,000 in the second quarter of 2008. Of the new adds, 268,000 were low-paying prepaid customers. The declines were “due to higher churn of contract customers,” the company said. Translation: T-Mobile USA is losing high-paying contract customers and replacing them with people who spend less money. As a result, the blended ARPU was $48 in the most recent 3-month period, in line with the first quarter of 2009 but down from $52 in the second quarter of 2008.

In comparison, market leader Verizon added 1.51.1.1 million new subscribers during the second quarter and had an ARPU of $51.1053, and its wireless revenues grew 27.7 percent to $10.5 15.5 billion, largely on the strength of demand for data services. Meanwhile AT&T, the nation’s second-largest carrier, saw its revenues rise 15.8 percent to $12 billion. AT&T’s wireless revenue growth was driven by solid subscriber gains, thanks to the iPhone and an increase in data services usage. (For more, see our Second Quarter 2009 in Review: Mobile report from GigaOM pro, sub required.)

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According to some estimates, mobile revenues will soon eclipse the wireline sales of carriers. T-Mobile USA has been the last of the big four mobile carriers to roll out its 3G network and for the longest time offered only one 3G phone of note — the G1 Google Phone. As a result, it has been slow to get on the data gravy train.

Data services revenue (as defined in Notes 1 and 8 to the Selected Data, below) was $990 million in the second quarter of 2009, representing 20.8% of blended ARPU, or $9.90 per customer, up from 19.6% of blended ARPU, or $9.40 per customer in the first quarter of 2009, and 16.6% of blended ARPU, or $8.60 per customer in the second quarter of 2008. Data services revenue increased 6% compared to the first quarter of 2009 and 23% year-over-year. 2.1 million 3G-capable converged devices (such as the T-Mobile G1, the 3G-enabled Sidekick LX, and the Samsung Behold and Memoir) were on the T-Mobile USA network at the end of the second quarter of 2009, an increase of almost 40% from the first quarter of 2009.

T-Mobile is facing some tough competition. Its rivals have hit devices in their respective arsenals, such as the iPhone, the BlackBerry Tour and the Palm Pre. T-Mobile is betting that the MyTouch will help it beat its rivals, but it will be a tough fight. The third quarter of 2009 is going to bring some interesting surprises. Never before have I looked so forward to seeing the quarterly results of wireless companies.

Related: The GigaOM Interview: Cole Brodman, Chief Technology Officer, T-Mobile USA.

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