3 takeaways from T-Mobile’s second quarter earnings

T-Mobile (TMUS 0.96%) continues to execute its merger with Sprint, and its second quarter results showed excellent progress. While the company fell short of Wall Street’s revenue and earnings estimates, its net subscriber additions were better than expected. Here are three big takeaways from the mobile operator’s revenue report.

Drop in postpaid phone churn

T-Mobile’s biggest rivals in wireless, AT&T (T 1.08%) and Verizon Communications (VZ 1.41%), both reported a year-over-year increase in subscriber churn in the second quarter. Not T-Mobile.

T-Mobile saw its postpaid phone churn drop 7 basis points to 0.80%. That number is actually lower than Verizon’s last quarter, which posted a churn rate of 0.81%. Verizon has always been the industry leader, but fell to last place in the second quarter.

It’s no surprise that churn has increased among T-Mobile’s rivals. AT&T and Verizon both instituted price increases in the second quarter. T-Mobile criticized other carriers for the move in a marketing game aimed at enticing customers to switch to its service.

Lower churn at T-Mobile led to higher net additions. The company added 1.7 million postpaid customers, including 723,000 postpaid telephony customers. That’s significantly better than Verizon’s 514,000 net postpaid adds (12,000 phones). While AT&T’s total postpaid additions topped 1.06 million, Verizon added a few postpaid phone customers. (AT&T added 813,000.)

Huge Broadband Gains

Part of T-Mobile’s 5G strategy is to offer fixed wireless home internet service in markets where it has excess 5G network capacity. Last quarter, it added 560,000 net new customers, which will likely turn out to be the industry leader.

T-Mobile ended the second quarter with more than 1.5 million home Internet subscribers, on track to hit its goal of 7 to 8 million subscribers by 2025. Although that number seemed aggressive when T-Mobile first announced it, if it can continue to deliver results like it did last quarter, the company will exceed that target.

For reference, Verizon added 268,000 broadband subscribers, including 256,000 fixed wireless subscribers using its wireless network for home Internet. AT&T lost a total of 25,000 customers as its fiber build added customers, but it lost legacy home Internet connections.

T-Mobile’s home Internet service additions are part of its strategy to increase revenue per account and strengthen its service. If you bundle home internet with your wireless service, it’s much harder to cancel. It’s a strategy his rivals have been able to employ for years.

One-time charges are in the rearview mirror

T-Mobile produced a net loss of $108 million last quarter. But make no mistake, the company is doing well. A few one-time charges reduced net income by $877 million.

First, it incurred a $477 million impairment charge on its wireline assets, which it acquired in the merger with Sprint. When T-Mobile shut down the Sprint wireless network, these wireline assets no longer supported the wireless business, and so T-Mobile decided to depreciate the assets.

The remaining $400 million comes from a settlement the company reached over its cybersecurity breach last summer.

T-Mobile continues to face costs related to the merger with Sprint, which totaled $1.67 billion last quarter, but those costs are expected to come down quickly. It expects to complete the dismantling of old Sprint network sites by the end of the third quarter, well ahead of its original schedule. As such, he believes merger-related spending peaked last quarter and will decline significantly in the fourth quarter.

Meanwhile, T-Mobile’s outlook for the rest of the year continues to improve. It raised its expectations for net postpaid subscriber additions, EBITDA and free cash flow. That stands in stark contrast to the cash flow issues that AT&T warned of in its earnings call.

Overall, T-Mobile emerged from the quarter stronger than ever and performing well on all fronts. Investors should be very encouraged by the results.

Adam Levy has no position in the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.

Casey J. Nelson