T-Mobile US buoyant but merger costs hit profits

T-Mobile US’s net income almost halved in the fourth quarter of last year but you could be forgiven for missing that metric amidst the hype of its overall results announcement.

Chief executive Mike Sievert (pictured) declared that the US mobile operator turned in “strongest year ever” in 2021, and many of its headline numbers seem to back up that statement.

“We didn’t just meet the bold goals we set for 2021 around customer growth, profitability, merger synergies and network buildout – we crushed all of them,” Sievert said. That’s the kind of comment that sends a journalist rushing out for a fine-tooth comb with which to examine those figures.

We can’t argue with Sievert’s assertion that the telco added 5.5 million postpaid customers in Q4; T-Mobile had already reported that figure last month. Nor can we quibble with the extent of its ultra-capacity of its 5G network, which reaches 210 million people, leaving AT&T and Verizon still playing catch-up. It’s worth added that churn is on the up though, with postpaid churn increasing slightly to 1.1% in Q4 and prepaid to 3.01%. But admittedly the increase is not huge.

Revenues are growing, up by more than 17% in the full year to $80.1 billion, and increasingly by 2.2% in Q4, the latter being a more reliable comparison, since Sprint’s numbers were only added in in April 2020 and the telco has not restated its figures.

But while T-Mobile might have hit its targets on profitability, nonetheless its net income figure was down a sizeable 43.7% year-on-year in Q4 to $422 million, and dropped by just over 1% in the full year. The slide was “primarily due to a planned increase in merger-related costs,” the telco said. Merger-related costs came in at $1.2 billion in Q4 and $3.1 billion for the full year.

Those costs might be weighing on T-Mobile’s bottom line, but synergies from the tie-up are evident. The telco claims it realised synergies of around $3.8 billion last year, including a $1.8 billion reduction in SG&A expenses, a $900 million reduction in the cost of service, and around $1 billion in avoided network build costs.

And its that network build-out that T-Mobile is the most excited about. Sievert used the operator’s earnings call to point out that his company is two years ahead of AT&T and Verizon on 5G rollout, insisting that that will still be the case in another two years’ time. Its rivals doubtless have a different view.

While T-Mobile has benefited from the spectrum it acquired via the Sprint deal – and that’s something of an understatement – it too acquired C-band spectrum last year and additional airwaves in auction 110 that officially concluded last month. It plans to add those airwaves to its network next year.

On the subject of C-band and the ongoing controversy over possible interference with the airline industry, Sievert indicated that he’s on the same side as AT&T and Verizon – wonders will never cease – and firmly believes that the spectrum will be proven to not affect radio altimeters… or at least properly functioning ones. But of course, this is less of an issue for T-Mobile, since it is out in front in 5G coverage terms while its rivals need to use the spectrum to catch up.

But that’s really a separate story, and one that probably has more mileage in it yet.

Ultimately, T-Mobile turned in a strong performance last year and the numbers back that up. But if you’re going to the company insists on issuing hype-filled announcements to accompany its results and generally shouting about its prowess in the market, it has to expect industry watchers to be picky.