T-Mobile USA issued its third quarter financials, and things are looking up over last quarter -- if only just slightly. The carrier posted service revenues of $4.67 billion -- that's a modest 0.1 percent increase over the second quarter, but down 0.9 percent over this time last year. Net income, meanwhile is at $332 million -- up 57-percent from Q2 2011 and four-percent from Q3 2010. The quarter also saw the addition of 126,000 customers (includes postpaid and prepaid users)-- a marked improvement from the loss of 50,000 last quarter. The only major US carrier without an iPhone is currently host to 33.7 million customers -- 10.1 million of whom own a 3G/4G smartphone, the latter of which is a 40 percent jump over this time last year.
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T-Mobile USA Reports Third Quarter of 2011 Results

BELLEVUE, Wash., Nov 10, 2011 (BUSINESS WIRE) -- --Adjusted OIBDA margin of 31% in the third quarter of 2011, up from 28% in the second quarter of 2011 and third quarter of 2010

--Service revenues of $4.67 billion in the third quarter of 2011, up 1.0% from the second quarter of 2011 but down 0.9% from the third quarter of 2010

--Net customer additions of 126,000 related to Value plan and unlimited Monthly 4G prepaid growth, compared to a net customer loss in the second quarter of 2011 of 50,000 and 137,000 net customer additions in the third quarter of 2010

--Contract ARPU of $53 in the third quarter of 2011, consistent with $53 in the second quarter of 2011 and up from $52 in the third quarter of 2010 attributed in part to data ARPU growth

--Data ARPU of $14.00 in the third quarter of 2011, up 13% from $12.40 in the third quarter of 2010

--As of the end of the third quarter of 2011, 10.1 million customers were using 3G/4G smartphones, up 40% compared to 7.2 million as of the end of the third quarter of 2010

T-Mobile USA, Inc. ("T-Mobile USA") today reported third quarter 2011 service revenues of $4.67 billion, slightly down from $4.71 billion in the third quarter of 2010, and adjusted OIBDA of $1.45 billion, up from $1.32 billion reported in the third quarter of 2010. Additionally, net customer additions were 126,000 in the third quarter of 2011, a 176,000 improvement from net customer losses in the second quarter of 2011 of 50,000 and slightly down from 137,000 net customer additions in the third quarter of 2010.

"Earnings improved as we continued to focus on making smartphones affordable to all Americans through our unlimited Value plans, improvements to our 4G network, and an expanding portfolio of 4G devices," said Philipp Humm, President and CEO of T-Mobile USA. "Attractive prepaid offerings helped us add customers in the third quarter of 2011 and data ARPU grew as smartphone adoption continued to increase. Discipline on the cost side contributed to year-on-year margin improvement, while postpay churn, in particular related to the iPhone 4S launches by competitors, will continue to be an area of concern."

"I am pleased with the development of adjusted OIBDA in the third quarter of 2011. The increase, partly thanks to successful cost saving initiatives, is a positive sign in a still challenging environment," said Rene Obermann, CEO of Deutsche Telekom.

Total Customers

-- T-Mobile USA served 33.7 million customers (as defined in Note 1 to the Selected Data, below) at the end of third quarter of 2011, compared to 33.6 million customers at the end of second quarter 2011 and 33.8 million customers at the end of third quarter 2010.

-- Third quarter 2011 net customer additions of 126,000, compared to a net customer loss in the second quarter of 2011 of 50,000, and net customer additions of 137,000 in the third quarter of 2010. -- During the second and third quarters of 2011, as part of T-Mobile USA's strategy of providing simple, value-based customer offers, T-Mobile USA introduced new unlimited Value plans for individuals, families and businesses, which resulted in improvement in net contract customer losses during the quarter.

-- The quarter-over-quarter improvement in net customer additions was driven by improvements in both contract and prepaid gross additions resulting from the introduction of unlimited Value plans discussed above and growth of prepaid unlimited Monthly 4G plans. This growth may be impacted in the fourth quarter of 2011 due to competitor launches of the iPhone 4S.

Contract Customers

-- Contract net customer losses, including connected devices (as defined in Note 1 to the Selected Data, below), were 186,000 in the third quarter of 2011, an improvement from 281,000 net contract customer losses in the second quarter of 2011. Net contract customer losses were 54,000 in the third quarter of 2010.

-- Branded contract net customer losses, excluding connected devices, were 389,000 in the third quarter of 2011, an improvement of 147,000 net branded contract customer losses from 536,000 in the second quarter of 2011. Net branded contract customer losses improved 64,000 in the third quarter of 2010. -- Sequentially, the improvement in net contract customer losses was driven primarily by higher gross additions related to the new unlimited Value plans.

-- The year-over-year change was primarily due to fewer branded contract gross customer additions resulting in part from the implementation of strengthened credit standards as an aspect of T-Mobile USA's focus on improving the overall quality of its contract customer base. Additionally, customer migrations from prepaid products as a result of the strategic phase out of certain hybrid plans contributed to the year-on-year growth in net branded contract customers.

-- Connected device net customer additions were 204,000 in the third quarter of 2011 compared to 256,000 in the second quarter of 2011 and 271,000 in the third quarter of 2010. Connected device customers, which have significantly lower ARPUs (averaging less than $2) than other contract customers, totaled 2.5 million at September 30, 2011.

Prepaid Customers

-- Prepaid net customer additions, including MVNO customers (as defined in Note 1 to the Selected Data, below), were 312,000 in the third quarter of 2011, an improvement from 231,000 net prepaid customer additions in the second quarter of 2011, and 190,000 net prepaid customer additions in the third quarter of 2010.

-- Branded prepaid net customer additions, excluding MVNO customers, were 254,000 in the third quarter of 2011, up 325,000 from second quarter 2011 branded prepaid net customer losses of 71,000, and improved by 333,000 from 79,000 net branded prepaid customer losses in the third quarter of 2010. -- The sequential and year-on-year growth in branded prepaid net customer additions was due primarily to growth in unlimited Monthly 4G prepaid plans.

-- MVNO customers increased slightly in the third quarter of 2011, totaling 3.5 million as of September 30, 2011. In the third quarter of 2011, net MVNO customer growth was lower compared to the second quarter of 2011 and the third quarter of 2010 due to higher MVNO customer churn.

Churn

-- Blended churn (as defined in Note 3 to the Selected Data, below), reflecting both contract and prepaid customers, increased to 3.5% in the third quarter of 2011, up from 3.3% in the second quarter of 2011 and 3.4% in the third quarter of 2010. -- The sequential and year-on-year increase in blended churn was primarily driven by higher churn from MVNO customers.

-- Churn from branded customers was 3.2% in the third quarter of 2011, consistent with the second quarter of 2011, and an improvement from 3.4% in the third quarter of 2010. The year-on-year decrease was primarily due to improvement in branded prepaid churn as a result of unlimited Monthly 4G prepaid plans.

-- Contract churn, including connected devices, was 2.4% in the third quarter of 2011, consistent with the second quarter of 2011 and the third quarter of 2010. -- To address contract churn, T-Mobile USA continued to focus on loyalty efforts during the quarter, including re-contracting its most loyal customers.

-- Prepaid churn, including MVNO, increased to 7.2% in the third quarter of 2011, from 6.6% in the second quarter of 2011 and was consistent with the third quarter of 2010. -- The sequential increase in prepaid churn was driven primarily by higher MVNO deactivations.

Adjusted OIBDA and Net Income

-- T-Mobile USA reported Adjusted OIBDA (as defined in Note 8 to the Selected Data, below) of $1.45 billion in the third quarter of 2011, compared to $1.28 billion in the second quarter of 2011 and $1.32 billion in the third quarter of 2010. -- Adjusted OIBDA in the third quarter of 2011 and the second quarter of 2011 excludes AT&T transaction-related costs of $51 million and $13 million, respectively, primarily consisting of employee-related expenses.

-- Sequentially and year-on-year, adjusted OIBDA increases were due to lower losses related to equipment subsidies resulting from the launch of the unlimited Value plans, as described below. Third quarter 2011 operating expenses, excluding the cost of equipment sales, remained fairly consistent sequentially and year-on-year as cost savings programs in 2011 have been effective in controlling expense growth. Additionally, during the third quarter of 2011, adjusted OIBDA increased due to a settlement related to the discontinued retail partnership with RadioShack.

-- T-Mobile USA's new unlimited Value plans, allow customers to subscribe to wireless services without the purchase of or upfront payment for a bundled handset, resulting in reduced costs per gross addition and subscriber retention costs, benefitting adjusted OIBDA and net income within the quarter. Qualifying customers may separately purchase handsets at any time, either deferring payments over 21-month installment contracts or paying the full price at point-of-sale. Compared to traditional bundled price plans, the new unlimited Value plans result in lower service revenues being recognized over the service contract period, while recognizing higher equipment revenues at the time of the sale.

-- Adjusted OIBDA margin (as defined in Note 9 to the Selected Data, below) was 31% in the third quarter of 2011, up from 28% in both the second quarter of 2011 and the third quarter of 2010. -- Sequentially and year-on-year OIBDA margin improved primarily due to the reductions in costs per gross addition in connection with the new unlimited Value plans, as described above.

-- Net income in the third quarter of 2011 was $332 million, up 57% compared to $212 million in the second quarter of 2011 and up 4% from the $320 million reported in the third quarter of 2010. -- Sequentially and year-on-year, the changes in net income were driven by the factors impacting adjusted OIBDA, as described above. Expenses related to the AT&T transaction, primarily consisting of employee-related costs, totaled $51 million during the third quarter of 2011 and $13 million in the second quarter of 2011. Additionally, fair value adjustments to certain of T-Mobile USA's financial instruments impacted Other expense, net, contributing to the changes in net income.

Revenue

-- Service revenues (as defined in Note 4 to the Selected Data, below) were $4.67 billion in the third quarter of 2011, up from $4.62 billion in the second quarter of 2011, but down 0.9% from $4.71 billion in the third quarter of 2010. -- Service revenues in the third quarter of 2011 increased compared to the second quarter of 2011 principally due to the growth in customer adoption of T-Mobile USA's unlimited Monthly 4G plans. Additionally, the sequential increase in service revenues was due in part to the introduction of reconnect fees for certain delinquent customer accounts.

-- Year-on-year, quarterly service revenues decreased primarily due to contract customer losses, which were partially offset by the increased adoption of data plans in the contract and prepaid customer base and from T-Mobile USA directly providing handset insurance services to its customers.

-- Service and Sales revenues (as defined in Note 13 to the Selected Data, below) were $5.2 billion in the third quarter of 2011, up from $5.0 billion in the second quarter of 2011, but decreased slightly from $5.3 billion in the third quarter of 2010. -- Service and Sales revenues increased from the second quarter of 2011 largely due to handset pricing changes in connection with the introduction of T-Mobile USA's new unlimited Value plans.

-- Compared to the third quarter of 2010, Service and Sales revenues decreased slightly due primarily to lower handset sales volumes, which were partially offset by handset pricing changes in connection with the introduction of T-Mobile USA's new unlimited Value plans.

-- Total revenues, including service, equipment sales, and other revenues were $5.2 billion in the third quarter of 2011, up from $5.1 billion in the second quarter of 2011, but down from $5.4 billion in the third quarter of 2010. -- Compared to the second quarter of 2011 and third quarter of 2010, total revenues changed due primarily to the changes in equipment sales revenues as described above.

-- Other revenues increased compared to the second quarter of 2011 and the third quarter of 2010 due in part to a settlement related to the discontinued retail partnership with RadioShack in the third quarter of 2011.

ARPU

-- Blended Average Revenue Per User ("ARPU" as defined in Note 4 to the Selected Data, below) was $46 in the third quarter of 2011, consistent with each of the three preceding quarters but down from $47 in the third quarter of 2010.

-- Contract ARPU, including connected devices, was $53 in the third quarter of 2011, consistent with the second quarter of 2011 and up from $52 in the third quarter of 2010. -- Year-on-year, contract ARPU increased as data revenue growth more than offset lower voice revenue. Also contributing to the increase in contract ARPU was higher handset insurance contract revenues due to the launch of the directly-provided T-Mobile USA Personal Handset Protection insurance and warranty program in the fourth quarter of 2010.

-- Prepaid ARPU, including MVNO, was $18 in the third quarter of 2011, consistent with the second quarter of 2011 but down from $19 in the third quarter of 2010. -- Quarter-on-quarter, prepaid ARPU remained consistent as growth in unlimited Monthly 4G prepaid was offset by the strategic phase out of the FlexPay no-contract product.

-- Year-on-year, prepaid ARPU decreased due to the shift in customer mix away from FlexPay no-contract customers.

-- Data service revenues (as defined in Note 4 to the Selected Data, below) were $1.4 billion in the third quarter of 2011, up 12% from the third quarter of 2010. Data service revenues in the third quarter of 2011 represented 30% of blended ARPU, or $14.00 per customer, compared to 30% of blended ARPU, or $13.60 per customer in the second quarter of 2011, and 27% of blended ARPU, or $12.40 per customer in the third quarter of 2010. -- In the third quarter of 2011, the increase in the number of customers using smartphones, along with T-Mobile USA's continued upgrading of its 3G and 4G networks helped drive Internet access revenue growth through the increased customer adoption of mobile broadband data plans.

-- 10.1 million customers were using smartphones enabled for the T-Mobile USA 3G/4G network (as defined in Note 12 to the Selected Data, below) such as the T-Mobile(R) Sidekick(R) 4G, the HTC(R) Sensation(TM) 4G, and the T-Mobile(R) myTouch(TM) 4G Slide, at the end of the third quarter of 2011. This represents a net increase of 40% or 2.9 million customers using smartphones from the third quarter of 2010.

-- 3G/4G smartphone customers now account for 30% of total customers, up from 29% in the second quarter of 2011 and 21% in the third quarter of 2010.

-- Messaging revenue (as described in Note 5 to the Selected Data, below) continued to be an important component of data service revenues. Messaging accounted for approximately 32% of total data revenues in the third quarter of 2011, compared to 35% in the second quarter of 2011 and 36% in the third quarter of 2010.

CPGA and CCPU

-- The average cost of acquiring a customer, Cost Per Gross Add ("CPGA" as defined in Note 7 to the Selected Data, below) was $260 in the third quarter of 2011, down from $320 in the second quarter of 2011 and $290 in the third quarter of 2010. -- Sequentially and year-on-year, CPGA decreased in the third quarter of 2011 due primarily to lower handset subsidies as a result of T-Mobile USA's new unlimited Value plans, which do not bundle subsidized handsets as in traditional wireless service contracts.

-- The average cash cost of serving customers, Cash Cost Per User ("CCPU" as defined in Note 6 to the Selected Data, below), was $23 per customer per month in the third quarter of 2011, consistent with the second quarter of 2011, but down from $24 in the third quarter of 2010.

Capital Expenditures

-- Cash capital expenditures (as defined in Note 10 to the Selected Data, below) were $741 million in the third quarter of 2011, compared to $688 million in the second quarter of 2011 and $643 million in the third quarter of 2010. -- Sequentially and year-on-year, the increase in cash capital expenditures was a result of payment timing differences. In the third quarter of 2011, incurred capital expenditures remained generally consistent with the second quarter of 2011 and the third quarter of 2010 as a result of the continued build-out of the HSPA+ 21 and HSPA+ 42 networks (as defined in Note 11 to the Selected Data, below).

-- To further improve the value provided to customers through its 4G mobile broadband network, T-Mobile USA has continued to invest in its HSPA+ 42 network, which reached over 170 million people as of the end of the third quarter of 2011, doubling the theoretical speed of its 4G network to 42 Mbps.

T-Mobile USA Recent Highlights

-- On March 20, 2011, Deutsche Telekom AG and AT&T Inc. entered into a definitive agreement under which AT&T will acquire T-Mobile USA from Deutsche Telekom in a cash and stock transaction valued at approximately $39 billion, subject to adjustment in accordance with the agreement. The agreement has been approved by the Board of Directors of both companies, and is expected to provide an optimal combination of network assets to add capacity and provide an opportunity to improve network quality in the near term for the customers of both companies. In particular, the transaction is important to address spectrum constraints and gives T-Mobile USA customers a clear path to take advantage of new generation LTE (Long Term Evolution) services. As part of the transaction, Deutsche Telekom will receive an equity stake in AT&T that, based on the terms of the agreement, would give Deutsche Telekom an ownership interest in AT&T of approximately 8 percent and one seat on the AT&T Board of Directors. In the third quarter of 2011, the U.S. Department of Justice (DOJ) filed a complaint in the Federal District Court of Washington, D.C. to block the acquisition. Deutsche Telekom and AT&T continue to pursue the acquisition, with a trial date on the DOJ's complaint set for mid-February 2012. Deutsche Telekom anticipates closing the transaction in the first half of 2012.

-- During the third quarter of 2011, T-Mobile USA introduced new unlimited Value plans. In August 2011, T-Mobile USA launched new Small Business Rate Plans, reinforcing the Company's focus on support of small business to make it more affordable for customers to experience America's Largest 4G Network. These plans include offerings of unlimited talk, text and data services.

-- T-Mobile USA continues to unveil cutting edge devices including 42 Mbps-capable smartphones such as the HTC(R) Amaze(TM) 4G and the Samsung Galaxy S(TM) II.

-- On August 15, 2011, T-Mobile USA earned the highest ranking in the J.D. Power and Associates 2011 United States Full-Service Wireless Purchase Experience Study(SM) -- Volume 2, the fifth consecutive highest ranking for T-Mobile USA in that study. On September 15, 2011, J.D. Powers and Associates ranked T-Mobile USA second highest in the Southwest and West Regions and tied for second highest in the Northeast and Mid-Atlantic Regions in their 2011 Wireless Network Quality Performance Study(SM) -- Volume 2.

-- During the third quarter of 2011, T-Mobile USA leveraged changes in retail distribution through new retail partnerships focused on new distribution opportunities. In line with this strategy, T-Mobile USA partnered with 7-Eleven Inc., Toys R Us and Family Dollar to begin offering a no-contract wireless product in these companies' retail locations. On July 26, 2011, T-Mobile USA and RadioShack discontinued their retail partnership.

-- During the third quarter of 2011, T-Mobile USA announced the rollout of a new global design for nearly 400 new and remodeled stores across the country in an ongoing commitment to provide the ultimate customer experience to consumers.

T-Mobile USA is the U.S. wireless operation of Deutsche Telekom AG (otcqx:DTEGY). In order to provide comparability with the results of other US wireless carriers, all financial amounts are in US dollars and are based on accounting principles generally accepted in the United States ("GAAP"). T-Mobile USA results are included in the consolidated results of Deutsche Telekom, but as presented there differ from the information contained herein as, among other things, Deutsche Telekom reports financial results in Euros and in accordance with International Financial Reporting Standards (IFRS).

This press release includes non-GAAP financial measures. The non-GAAP financial measures should be considered in addition to, but not as a substitute for, the information provided in accordance with GAAP. Reconciliations from the non-GAAP financial measures to the most directly comparable GAAP financial measures are provided below following Selected Data and the financial statements.

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