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T-Mobile's Q4 Subscriber Figures: An In-Depth Analysis
Issue 103 of the Briefing included a comment on Deutsche Telekom's fourth quarter customer numbers, which were released about a month before the financials. The key points of that piece are reproduced here. We concluded that the overall picture was mixed, but sufficiently positive to allow management to adopt a positive tone in its accompanying commentary.
On the fixed and broadband side, the traditional PSTN and ISDN bases continue to decline, but this has been offset to a great degree by growth in broadband. In this latest quarter, 458k PSTN lines were lost and a further 80k ISDN for a combined drop of 538k. All but 11k of these were replaced with broadband connections. Over the course of the year, DT lost 2.14m traditional connections but added 2.26m broadband connections, which we would suggest leaves it ahead on balance, given the higher revenue generating potential of the newer technology.
The mobile side of the business is faring rather better, as one might expect.
The total mobile base is up by more than 13m over the year, to 119.6m. Of these, 5.9m were connected in the final quarter. The European side of the business is moving towards the 100m milestone, ending the year at 90.9m, 9.54m up in the year, with 4.98m of the new additions coming in the final three months. Some 3.2m of these were connected to T-Mobile's "web'n'walk" data package. T-Mobile enjoyed growth in every one of its European markets, with Germany (+4.55m over twelve months and 1.48m over three) leading the charge. The Netherlands with 2.34m additions came second, but the vast majority of these were acquired through the purchase of Orange's Dutch company. The best organic results were seen in Poland (+770k and 276k respectively), Hungary (+422k and 225k) the UK (+406k and 306k), Croatia (+227k and 107k) and the Czech Republic (+222k and 64k).
The United States was, once again, one of T-Mobile's main growth engines, growing by 14.6% over the year to a total of 28.7m, equivalent to 3.64m net adds. These figures are before the inclusion of SunCom, which had about 1.1m customers at the end of September. It has yet to report its fourth quarter numbers but in all probability, it will have grown enough to give T-Mobile a proforma number of more than 30m. This is some way below the 53.8m connected to the number three player, Sprint Nextel, but the gap is closing each quarter and is set to close further. Sprint expects to lose more than one million customers in both of the next two quarters and T-Mobile will hope to gain something approaching that number, so the current gap - 24m or thereabouts - should become 20m or less by June.
Turning to the financials, it isn't entirely clear why Deutsche Telekom should have been so upbeat in its earlier statement.
Fourth quarter net revenue has seen a year-on-year reduction of €100m to €15,795m, although the annual is €1.1bn ahead at €62.52bn. The number is the result of much reduced fixed line revenue, offset by gains from mobile. Year on year, Deutsche Telekom's fixed revenues have dropped from €20.37bn to €19.07bn, a 6.4% decline, while mobile revenues for the same period have risen from €31.3bn to €34.05bn, an 8.8% improvement. The European side of the company showed a 13.3% increase to exactly €20bn, while T-Mobile USA reported a more modest 3.2% rise, as the puny state of the US dollar took its toll on the restated Euro total.
The drop in fixed line revenues has produced a marked decline in fixed line EBITDA - down 11.2% at €7.77bn - and this has resulted in a reduction in the group total of 0.6%, from €19.43bn to €19.33bn. The mobile side produced an 8.4% gain, up from €9.9bn to €10.73bn and would have grown sufficiently to allow an overall net gain, but for the currency effect.
Unfortunately, things go from bad to worse as we move further down the P&L account. Increases in selling general and administrative costs left operating profits down 4.2% at €8.087bn and pre-tax profits 5.4% off, at €5.26bn. Then, the company's tax rate jumped by the best part of ten percentage points to leave net profits after tax down by 17.6%, while minorities rose by 23% to €521m, to leave the attributable line down 22% at €3bn, compared to €3.85bn one year earlier. However, capital expenditure was well down at €8.015bn compared to €11.81bn one year earlier, which allowed DT to reduce debt from €39.6bn to €37.2bn, a 5.9% year-on-year decline.
The final chart shows the result of these variations, measured as cash payback periods. None has changed dramatically except the Netherlands, where the SAC figures have jumped following the inclusion of Orange Netherlands, while ARPUs have headed in the other direction. The overall picture is pretty encouraging however - in all but four markets, T-Mobile has covered the cost of acquisition within three months.
As before, T-Mobile has reported a material amount of additional data which space precludes our reporting here. Readers are encouraged to visit the relevant pages of The Mobile World Database for further information.
Posted to the site on 6th March 2008
This article was extracted from The Mobile World Briefing, the weekly newsletter from The Mobile World.
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