Overview: Omega Advisors discloses new positions in 1Q14 (Part 5 of 6)
Omega Advisors and T-Mobile
Leon G. Cooperman’s Omega Advisors added new positions in Dollar General (DG), ADT Corp. (ADT), and Time Warner Cable (TWC). Top positions sold were T-Mobile U.S. (TMUS) and General Motors (GM).
Omega Advisors disposed a 1.45% position in T-Mobile U.S. Inc. (TMUS) in 1Q14. In March, we reported that the position was initiated in 4Q13.
Based in Bellevue, Washington, T-Mobile is a telecommunications services provider in the United States. Its coverage includes all major metropolitan areas and over 280 million people or 96% of Americans. The company’s telecom services include wireless voice, text, and data services. In terms of subscribers, it was ranked the third largest provider of prepaid plans and the fourth largest provider of post-paid plans among all telecommunications companies in the U.S.
Sprint and T-Mobile U.S. near merger deal
Shares increased earlier this month on reports that Sprint is close to a merger with rival T-Mobile to create a large player that would compete against the two biggest mobile operators, Verizon (VZ) and AT&T (T). Japan’s Softbank Corp. owns an 80% stake stake in Sprint, while Deutsche Telekom AG owns about 67% of T-Mobile U.S. An earlier proposal by Sprint and Softbank to buy out T-Mobile saw concerns expressed by the U.S. Department of Justice and the Federal Communications Commission. News reports have speculated that the merger might face regulatory hurdles, especially since 600 MHz broadcast TV spectrum auctions are scheduled next year. Sprint owner Masayoshi Son of Softbank has been trying to convince U.S. regulators that merging the number-three and -four wireless carriers will increase competition and improve prices and options. An unconfirmed Bloomberg report said the deal, which could be announced this month or in July, will value T-Mobile at almost $40 a share.
T-Mobile adds 2.4 million customers, but losses continue to mount
T-Mobile’s 1Q14 results met earnings expectations, but missed on revenue. Revenues increased 47% to $6.9 billion, but the company posted a net loss of $151 million compared to a profit of $107 million a year ago. Its earnings per share fell from $0.20 to $0.19. Service revenues for 1Q14 grew by 33.3% year-over-year (or YoY) primarily due to the inclusion of MetroPCS results for the full quarter.
T-Mobile reported 2.4 million total net customer additions with 1.8 million total branded net customer additions for the quarter, including branded postpaid net additions of 1.3 million. T-Mobile added that it has “dramatically outperformed the competition.” The branded prepaid business exhibited improved customer growth with 465,000 branded prepaid net customer additions in 1Q14, driven by MetroPCS and growth in the 30 expansion markets launched in 2013. Both Verizon and Sprint were reported to have lost subscribers during the first quarter while AT&T saw its strongest first-quarter postpaid growth in five years driven by strong adoption of its Mobile Share and AT&T Next plans.
T-Mobile posts decline in Adjusted EBITDA and ARPU
T-Mobile said its network modernization program and strong execution of the “uncarrier” strategy contributed to a record low branded postpaid churn rate of approximately 1.5% for 1Q14, down 20 basis points versus 4Q13 and an improvement of 40 basis points compared to 1Q13. In January, 2014, T-Mobile launched the fourth phase of its uncarrier value proposition, which reimburses customers’ early termination fees when they switch from other carriers and trade in their eligible device. The reimbursement of early termination fees (or ETF) is recorded as a reduction of equipment sales revenues. The company said it saw an impact on both revenue and adjusted earnings before interest, taxes, depreciation, and amortization (or EBITDA) of approximately $100 million during 1Q14.
Branded postpaid average revenue per user (or ARPU) decreased $4.06 due to the continued growth of customers under the Value and Simple Choice plans. The portion of branded postpaid customers on Value or Simple Choice plans was 75% at the end of 1Q14, up from 69% at the end of 4Q13, and 36% at the end of March 31, 2013.
The company said, “T-Mobile expects to drive further momentum while continuing to invest in profitable growth. With the success of our Simple Choice plan and the continued evolution of the Un-carrier strategy, branded postpaid net additions for 2014 are now expected to be between 2.8 and 3.3 million.” For the full year 2014, T-Mobile expects adjusted EBITDA to be in the range of $5.6– $5.8 billion.
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