T-Mobile Q3 Preview: Impact Of Unlimited One Plan And iPhone 7 In Focus

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T-Mobile US

T-Mobile U.S. (NASDAQ:TMUS), the third largest and fastest growing nationwide wireless carrier, is expected to publish its Q3 2016 results towards the end of October. While we expect the carrier’s revenues and EBITDA margins to grow on a year-over-year basis, driven by its expanding subscriber base, we will be closely watching its postpaid subscriber adds, which will likely be influenced by the iPhone 7 launch and the carrier’s new unlimited data plan called T-Mobile One. The carrier has guided total branded postpaid net additions of 3.4 to 3.8 million for the year, with about 1.92 million subscribers added during the first half of the year.

We have a $49 price estimate for T-Mobile, which is slightly ahead of the current market price.

See our complete analysis for T-Mobile U.S.

iPhone 7 Promos May Help Net Adds At The Expense Of Equipment Revenues

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Apple’s iPhone 7 went on sale in mid-September and promos turned out to be the strongest we’ve seen in the device’s history, with nationwide carriers essentially allowing customers with a good credit history to trade in an old iPhone (6/6S/Plus) and receive a $650 credit towards a new iPhone 7, after signing up for a device payment plan. Overall, we expect T-Mobile to have added the most postpaid customers during Q3 on account of the promos (it noted that iPhone 7 pre-orders were 4x that of the iPhone 6). Larger rivals AT&T and Verizon have indicated more muted gains, while smaller rival Sprint is only offering the promo under its leasing program, which could prove less attractive to some customers. That said, the promos are likely to put some pressure on T-Mobile’s equipment revenues and average billings per account.

Impact of T-Mobile One Plans

T-Mobile rolled out a new unlimited data plan called T-Mobile One in September, while announcing that it would eventually do away with its tiered data plans altogether. (related: How The One Plan Impacts T-Mobile) We believe that the move serves as a passive price increase, helping T-Mobile boost its ARPU, which is among the lowest in the industry (branded postpaid ARPU stood at just $47 in Q2). [1] However, the carrier does run the risk of alienating some low-end customers. For instance, under the carrier’s previous structure, the entry level plan which offered 6 GB of data for four lines cost about $120 per month, excluding device payments, while the new One plan will be priced at $160 for four unlimited lines. We will be interested in hearing about how the uptake of the One Plan was compared to the Simple Choice tiered plans that the carrier still continues to offer.

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Notes:
  1. T-Mobile Q2 2016 Investor Factbook []