T-Mobile USA Reports Second Quarter Results, Strong Customer Numbers and OIBDA

T-Mobile USA, Inc. (T-Mobile USA) today reported second quarter 2007 results. At the end of the quarter, the company had almost 27 million customers, adding 857,000 net new customers during the quarter, of which 687,000 or 80% were contract customers. T-Mobile USA also reported ARPU of $53 in the quarter, OIBDA of $1.39 billion, up 14.5% compared to the second quarter of 2006, and a reduction in contract customer churn to 1.8%. "In the quarter, T-Mobile continued to take bold steps to expand our user base and drive consumer-relevant innovation,” said Robert Dotson, Chief Executive Officer and President of T-Mobile USA, Inc. "We continued to add high quality customers as consumers eagerly embrace myFavessm and the unbounded freedom of talking as long as they like to better stay in touch with the five most important people in their lives. In the quarter, we also introduced HotSpot@Homesm, the first in a new line of breakthrough products and services that allow customers to make unlimited calls from home while providing the best in-home wireless coverage possible. With this introduction, the landline replacement revolution has begun in earnest.” "T-Mobile USA continues to play an important role for DT and remains a major growth driver for our business in terms of revenues and profitable growth,” said René Obermann, Chief Executive Officer, Deutsche Telekom. "In addition the team’s strong performance as a product innovator and a leader in customer service drives the way for our entire business when it comes to superior product quality and service orientation.” Customers -- In the second quarter of 2007, T-Mobile USA added 857,000 net new customers, down from 980,000 in the first quarter of 2007, and up from 613,000 in the second quarter of 2006. -- Contract customer net additions in the second quarter of 2007 made up 80% of customer growth, up from 74% in the first quarter of 2007, and down from 83% in the second quarter of 2006. -- Contract customers comprised 84% of T-Mobile USA's total customer base at June 30, 2007. Churn -- Contract customer churn was 1.8% in the second quarter of 2007, down from 1.9% in the first quarter of 2007 and 2.2% in the second quarter of 2006. -- Blended churn, including both contract and prepaid customers, was 2.7% in the second quarter of 2007, slightly up from 2.6% in the first quarter of 2007 and down from 2.9% in the second quarter of 2006. -- On a blended basis, the impact of lower contract customer churn was offset by higher prepaid churn in the second quarter of 2007. OIBDA and Net Income -- T-Mobile USA reported OIBDA of $1.39 billion in the second quarter of 2007, up from $1.22 billion in the first quarter of 2007 and $1.21 billion in the second quarter of 2006. -- OIBDA margin was 32% in the second quarter of 2007, up from 30% in the first quarter of 2007 and the same as in the second quarter of 2006. -- The sequential margin improvement was due to the continued strength in revenue combined with stable CCPU and slightly reduced CPGA (see below). -- Net income for the second quarter of 2007 was $350 million, up 11% from $315 million in the first quarter of 2007 and up 50% from $233 million in the second quarter of 2006. Revenue -- Service revenues, consisting of contract, prepaid, and roaming and other service revenues, rose to $4.20 billion in the second quarter of 2007, up from $3.99 billion in the first quarter of 2007 and $3.59 billion in the second quarter of 2006. -- The increase is due primarily to growth in the number of customers and strong contract ARPU ("Average Revenue Per User" as defined in note 1 to the Selected Data, below). -- Other revenues were $89 million in the second quarter of 2007, consistent with $88 million in the first quarter of 2007 and down from $177 million in the second quarter of 2006. -- The ongoing migration of Cingular's customers to its own network following the dissolution of our network sharing venture in early 2005 was the major reason for the year on year fall in other revenues. -- In 2007, WiFi revenues were reclassified to contract revenues and roaming and other service revenues (see note 8 to the Selected Data below for further explanation). -- Total revenues, including service, equipment, and other revenues were $4.78 billion in the second quarter of 2007, up from $4.55 billion in the first quarter of 2007 and $4.21 billion in the second quarter of 2006. ARPU -- Blended ARPU was $53 in the second quarter of 2007, up from $52 in the first quarter of 2007 and the second quarter of 2006. -- Contract ARPU was $57 in the second quarter of 2007, up from $56 in the first quarter of 2007 and up from $55 in the second quarter of 2006, driven by increases in data and airtime revenues. -- Data services revenues (see notes 1 and 8 below) were $616 million in the second quarter of 2007, representing 14.7% of blended ARPU, or $7.80 per customer, compared to 14.3%, or $7.50 in the first quarter of 2007, and 10.9%, or $5.70 in second quarter of 2006. -- Strong growth in messaging revenue continued to be the most significant driver increasing data ARPU. The total number of SMS and MMS messages increased to 18 billion in the second quarter of 2007, compared to almost 16 billion in the first quarter of 2007 and 8 billion in the second quarter of 2006. -- Strong take-up of converged devices, such the T-Mobile SideKick, the T-Mobile Dash and BlackBerry devices, continued during the quarter. CPGA and CCPU -- The average cost of acquiring a customer, Cost Per Gross Add ("CPGA" as defined in note 3 to the Selected Data, below) was $300 in the second quarter of 2007, down from $310 in the first quarter of 2007 and $320 in the second quarter of 2006. -- The lower CPGA compared to the first quarter of 2007 is due to lower costs of acquisition, due primarily to a reduced subsidy loss. -- The average cash cost of serving customers, Cash Cost Per User ("CCPU" as defined in note 2 to the Selected Data, below), was $25 per customer per month in the second quarter of 2007, in line with the first quarter of 2007 and the second quarter of 2006. -- CCPU was consistent compared to the first quarter of 2007 and the second quarter of 2006 due to higher network costs being offset by lower subsidy losses. Capital Expenditures -- Ongoing operational capital expenditures (purchases of property and equipment) were $546 million in the second quarter of 2007, compared with $622 million in the first quarter of 2007 and $593 million in the second quarter of 2006. -- The reduction in cash capital expenditures compared to the first quarter of 2007 was due to higher incurred capital spend being more than offset by cash payment timing differences. -- T-Mobile USA continued its commitment to invest in network coverage and quality in the second quarter of 2007, adding almost 600 new cell sites, bringing the total number of cell sites at the end of the quarter to almost 36,400. Other Highlights -- For the sixth consecutive reporting period, according to the J.D. Power and Associates 2007 Wireless Customer Care Performance Study(SM) released in July 2007, T-Mobile not only earned the highest ranking once again, but its overall customer care score was significantly higher than that of any other wireless carrier. -- Also, earlier in the second quarter of 2007, J.D. Power and Associates announced that T-Mobile ranked highest in Overall Customer Satisfaction with Wireless Retail Service for the fifth reporting period in a row. T-Mobile has now received the highest ranking in every J.D. Power wireless retail service study over the past three years, tying in 2005. 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. T-Mobile USA is the U.S. operation of T-Mobile International AG ("T-Mobile International"), the mobile communications subsidiary of Deutsche Telekom AG ("Deutsche Telekom") (NYSE:DT). 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 differ from the information contained herein as Deutsche Telekom reports financial results in accordance with International Financial Reporting Standards (IFRS). SELECTED DATA FOR T-MOBILE USA   (thousands) Q2 07 Q1 07 YE 06 Q4 06 Q3 06 Q2 06 Covered population7 282,000 280,000 277,000 277,000 276,000 275,000 Customers, end of period 26,877 26,020 25,041 25,041 24,139 23,338 Thereof contract customers10 22,624 21,937 21,211 21,211 20,428 19,656 Thereof prepay customers 4,253 4,083 3,829 3,829 3,711 3,682 Net customer additions 857 980 3,351 901 802 613   Minutes of use/contract customer/month 1,150 1,090 1,030 1,020 1,050 1,040 Contract churn 1.80 % 1.90 % 2.20 % 2.10 % 2.30 % 2.20 % Blended churn 2.70 % 2.60 % 2.90 % 2.90 % 3.00 % 2.90 %   ($ / month) ARPU (blended)1, 8 53 52 52 52 52 52 ARPU (contract) 57 56 55 56 56 55 ARPU (prepaid) 19 19 22 21 22 22 Cost of serving (CCPU)2 25 25 25 25 25 25 Cost per gross add (CPGA)3 300 310 300 300 300 320   ($ million) Total revenues 4,780 4,546 17,138 4,523 4,367 4,209 Service revenues1 4,195 3,994 14,511 3,813 3,723 3,586 OIBDA4 1,386 1,225 4,712 1,172 1,227 1,210 OIBDA margin 5 32 % 30 % 31 % 30 % 32 % 32 % Capital expenditures6 546 622 2,608 675 569 593   Cell sites on-air9 36,400 35,800 35,400 34,400 33,400 32,600   Since all companies do not calculate these figures in the same manner, the information contained in this press release may not be comparable to similarly titled measures reported by other companies.   1 Average Revenue Per User ("ARPU") represents the average monthly service revenue we earn from our customers. ARPU is calculated by dividing service revenues for the specified period by the average customers during the period, and further dividing by the number of months in the period. We believe ARPU provides management with useful information to evaluate the recurring revenues generated from our customer base.   Service revenues include contract, prepaid, and roaming and other service revenues, and do not include equipment sales and other revenues. Data services revenues is a component of service revenues. Per the consolidated financial statements below, among other items other revenues include co-location rental income and wholesale revenues from the usage of our network in California, Nevada, and New York by Cingular customers, and are therefore not included in ARPU.   2 The average cash cost of serving customers, or Cash Cost Per User ("CCPU") is a non-GAAP financial measure and includes all network and general and administrative costs as well as the subsidy loss unrelated to customer acquisition. Subsidy loss unrelated to customer acquisition includes upgrade handset costs offset by upgrade equipment revenues and other related direct costs. This measure is calculated as a per month average by dividing the total costs for the specified period by the average total customers during the period and further dividing by the number of months in the period. We believe that CCPU, which is a measure of the costs of serving a customer, provides relevant and useful information and is used by our management to evaluate the operating performance of our business.   3 Cost Per Gross Add ("CPGA") is a non-GAAP financial measure and is calculated by dividing the costs of acquiring a new customer, consisting of customer acquisition costs plus the subsidy loss related to customer acquisition for the specified period, by gross customers added during the period. Subsidy loss related to customer acquisition consists primarily of the excess of handset and accessory costs over related revenues incurred to acquire new customers. We believe that CPGA, which is a measure of the cost of acquiring a customer, provides relevant and useful information and is used by our management to evaluate the operating performance of our business.   4 OIBDA is a non-GAAP financial measure, which we define as operating income before depreciation and amortization. In a capital-intensive industry such as wireless telecommunications, we believe OIBDA, as well as the associated percentage margin calculation, to be meaningful measures of our operating performance. OIBDA should not be construed as an alternative to operating income or net income as determined in accordance with GAAP, as an alternative to cash flows from operating activities as determined in accordance with GAAP or as a measure of liquidity. We use OIBDA as an integral part of our planning and internal financial reporting processes, to evaluate the performance of our senior management and to compare our performance with that of many of our competitors. We believe that operating income is the financial measure calculated and presented in accordance with GAAP that is the most directly comparable to OIBDA.   5 OIBDA margin is a non-GAAP financial measure, which we define as OIBDA (as described in note 4 above) divided by total revenues less equipment sales.   6 Capital expenditures include amounts paid by T-Mobile USA for purchases of property, plant and equipment.   7 The covered population statistic represents T-Mobile USA's GSM / GPRS 1900 voice and data network coverage, combined with roaming and other agreements.   8 Data ARPU is defined as total data revenues from contract customers, prepaid customers, and other data revenues, divided by average contract and prepaid customers during the period. Wi-Fi revenues have historically been reported in other (non-service) revenues. Beginning in the first quarter of 2007, Wi-Fi revenues are shown as a component of service revenues. As a result of this change, data ARPU was approximately $0.60 higher in the second quarter of 2007. If this change was applied retrospectively it would have had similar impacts on data ARPU and data revenue in each of the four quarters of 2006. Since the impacts of this change on contract ARPU, blended ARPU, and service revenues are immaterial, these metrics have not been retroactively adjusted in prior periods.   9 Cell sites are defined as the total number of sites in service at the end of the period, excluding small low power, low gain access sites. A site is in service when all equipment is installed and the site is integrated into the network. Prior quarter cell site information has been updated to align with this definition.   10 In the quarter, postpay customers were renamed contract customers in line with Deutsche Telekom group reporting terminology. T-MOBILE USA Condensed Consolidated Balance Sheets (dollars in millions) (unaudited)   June 30, Dec. 31,   2007       2006   ASSETS Current assets: Cash and cash equivalents $ 60 $ 78 Accounts receivable, net of allowances of $260 and $203, respectively 2,466 2,448 Accounts receivable from affiliates 251 136 Inventory 472 612 Current portion of net deferred tax assets 666 598 Licenses held for exchange 20 1,145 Other current assets   422       446   Total current assets 4,357 5,463 Property and equipment, net of accumulated depreciation of $8,234 and $7,058, respectively 10,611 10,932 Goodwill 10,701 10,701 Spectrum licenses 14,593 14,516 Other intangible assets, net of accumulated amortization of $451 and $421, respectively 71 102 Other assets   181       181   $ 40,514     $ 41,895     LIABILITIES AND STOCKHOLDER’S EQUITY Current liabilities: Accounts payable and accrued liabilities $ 2,650 $ 2,955 Current payables to affiliates 749 1,183 Liability for license exchange - 1,145 Deferred revenue   380       365   Total current liabilities   3,779       5,648     Long-term payables to affiliates 7,067 7,773 Deferred tax liabilities 930 491 Other long-term liabilities   840       756   Total long-term liabilities   8,837       9,020     Minority interest in equity of consolidated subsidiaries 86 84   Commitments and contingencies   Stockholder’s equity: Common stock 44,466 44,462 Accumulated deficit   (16,654 )     (17,319 ) Total stockholder’s equity   27,812       27,143   $ 40,514     $ 41,895   T-MOBILE USA Condensed Consolidated Statements of Operations (dollars in millions) (unaudited)   Quarter EndedJune 30,2007 Quarter EndedMarch 31,2007 Quarter EndedJune 30,2006 Revenues: Contract $ 3,814 $ 3,617 $ 3,218 Prepaid 232 229 241 Roaming and other service 149 147 127 Equipment sales 496 465 446 Other   89     88     177   Total revenues   4,780     4,546     4,209   Operating expenses: Network 1,082 1,007 878 Cost of equipment sales 747 761 702 General and administrative 788 758 682 Customer acquisition 777 795 737 Depreciation and amortization   659     626     651   Total operating expenses   4,053     3,947     3,650   Operating income 727 599 559 Other expense, net   (157 )   (113 )   (122 ) Income before income taxes 570 486 437 Income tax expense   (220 )   (171 )   (204 ) Net income $ 350   $ 315   $ 233   T-MOBILE USA Condensed Consolidated Statements of Cash Flows (dollars in millions) (unaudited)   Quarter EndedJune 30,2007 Quarter EndedJune 30,2006 Operating activities: Net income $ 350 $ 233 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 659 651 Income tax expense 220 204 Other, net 110 81 Changes in operating assets and liabilities: Accounts receivable (46 ) 97 Inventory 129 (82 ) Other current assets 24 3 Accounts payable and accrued liabilities   (147 )   (9 ) Net cash provided by operating activities   1,299     1,178   Investing activities: Purchases of property and equipment (546 ) (593 ) Acquisitions for wireless properties and network build (46 ) - Short-term loan receivable from affiliate (600 ) (600 ) Other, net   -     21   Net cash used in investing activities   (1,192 )   (1,172 ) Financing activities: Long-term debt repayments to affiliates (100 ) - Other, net   1     -   Net cash used in financing activities   (99 )   -     Change in cash and cash equivalents 8 6 Cash and cash equivalents, beginning of period   52     44   Cash and cash equivalents, end of period $ 60   $ 50   Non-cash investing and financing activities with related parties: T-Mobile USA remitted $600 million to affiliates in the second quarter of 2007 as a short term receivable, the cash outflow was later used during the period as settlement of debt in line with the repayment schedule. T-MOBILE USA Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (dollars in millions, except for CPGA and CCPU) (unaudited)   OIBDA can be reconciled to our operating income as follows:   Q2 2007 Q1 2007 YE 2006 Q4 2006 Q3 2006 Q2 2006 OIBDA $ 1,386 $ 1,225 $ 4,712 $ 1,172 $ 1,227 $ 1,210 Depreciation and amortization   (659 )   (626 )   (2,522 )   (623 )   (654 )   (651 ) Operating income $ 727   $ 599   $ 2,190   $ 549   $ 573   $ 559   The following schedule reflects the CPGA calculation and provides a reconciliation of cost of acquiring customers used for the CPGA calculation to customer acquisition costs reported on our condensed consolidated statements of operations:   Q2 2007 Q1 2007 YE 2006 Q4 2006 Q3 2006 Q2 2006 Customer acquisition costs $ 777 $ 795 $ 3,020 $ 819 $ 775 $ 737   Plus: Subsidy loss Equipment sales   (496 ) (465 ) (1,983 ) (588 ) (497 ) (446 ) Cost of equipment sales   747     761     3,078     881     758     702   Total subsidy loss   251     296     1,095     293     261     256     Less: Subsidy loss unrelated to customer acquisition     (146 )   (177 )   (715 )   (193 )   (160 )   (162 ) Subsidy loss related to customer acquisition   105     119     380     100     101     94   Cost of acquiring customers $ 882   $ 914   $ 3,400   $ 919   $ 876   $ 831     CPGA ($ / new customer added) $ 300 $ 310 $ 300 $ 300 $ 300 $ 320 T-MOBILE USA Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures (dollars in millions, except for CPGA and CCPU) (unaudited)   The following schedule reflects the CCPU calculation and provides a reconciliation of the cost of serving customers used for the CCPU calculation to total network costs plus general and administrative costs reported on our condensed consolidated statements of operations:   Q2 2007 Q1 2007 YE 2006 Q4 2006 Q3 2006 Q2 2006 Network costs $ 1,082 $ 1,007 $ 3,621 $ 954 $ 940 $ 878 General and administrative   788   758   2,707   697   667   682 Total network and general and administrative costs   1,870 1,765 6,328 1,651 1,607 1,560   Plus: Subsidy loss unrelated to customer acquisition     146   177   715   193   160   162 Total cost of serving customers $ 2,016 $ 1,942 $ 7,043 $ 1,844 $ 1,767 $ 1,722   CCPU ($ / customer per month) $ 25 $ 25 $ 25 $ 25 $ 25 $ 25 About T-Mobile USA: Based in Bellevue, WA, T-Mobile USA, Inc. is a member of the T-Mobile International group, the mobile telecommunications subsidiary of Deutsche Telekom AG (NYSE:DT). T-Mobile USA’s innovative wireless products and services help empower people to connect effortlessly to those who matter most. In addition, T-Mobile USA operates one of the largest carrier-owned Wi-Fi (802.11b) wireless broadband (WLAN) networks in the country, available in more than 8,800 convenient public access locations nationwide including roaming locations. Multiple independent research studies continue to rank T-Mobile USA highest in wireless customer satisfaction, wireless call quality and wireless customer care in numerous regions throughout the U.S. For more information, visit the company website at www.t-mobile.com. About T-Mobile International: T-Mobile International is one of the world’s leading companies in mobile communications. As one of Deutsche Telekom AG’s (NYSE:DT) three strategic business areas, T-Mobile International concentrates on the key markets in Europe and the United States. By the end of the second quarter of 2007, approximately 112 million mobile customers were served by the mobile segment of the Deutsche Telekom group, all over a common technology platform based on GSM, the world’s most widely used digital wireless standard. For more information about T-Mobile International, please visit www.t-mobile.net. For further information on Deutsche Telekom, please visit www.telekom.com/investor-relations.