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8/8/2013
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T-Mobile's 'Uncarrier' Strategy Wins 1.1M Customers

With the Apple iPhone finally available in its stores and a less restrictive approach to customer contracts, T-Mobile expanded its customer base for the first time in four years.

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The waves made earlier this year by T-Mobile's "Un-carrier" approach to the wireless industry are starting to reach shore. The company reported its second-quarter earnings today and recorded a hefty increase of 1.1 million customers. The carrier's challenger strategy has already made its mark.

T-Mobile reported revenue of $6.23 billion, which increased from $4.68 billion in the year-ago quarter. The revenue jump can be attributed, in part, to its acquisition of MetroPCS, which closed in May. Its earnings for the period, however, dropped 16% to $1.1 billion. MetroPCS blamed the earnings drop on increased marketing costs. The company has gone full tilt with TV commercials and other forms of advertisements to get its message to consumers.

Of the 1.1 million new customers, fully 685,000 of them are the more profitable postpaid variety. To put this number into perspective, AT&T, which is twice the size of T-Mobile, added only 550,000 postpaid customers during the second quarter. Sprint actually lost 1 million postpaid customers during the second quarter. The rest of T-Mobile's customer growth came from the prepaid market.

[ Read about T-Mobile's new phone upgrade plan: T-Mobile Shakes Up Market With Fast Phone Upgrades. ]

These customer additions were surely aided by the arrival of the Apple iPhone 5, which went on sale in April. T-Mobile sold 5 million devices during the second quarter, 4.3 million of which (or 86%) were smartphones. T-Mobile sold 1.45 million iPhones, which represented 29% of all device sales for the quarter.

The iPhone may have its own appeal, but T-Mobile also made a slew of other changes to the way it operates that played a role in its quarterly growth. First, its Simple Choice rate plans and device financing: The company ditched lengthy service contracts and made some of its billing practices more transparent.

"T-Mobile's Uncarrier approach has clearly resonated with consumers. By fixing the things that drive them mad, like contracts and upgrades, and freeing them from the two-year sentences imposed on them by our competitors, they are choosing the new T-Mobile in unprecedented numbers," said T-Mobile CEO John Legere. "We are just beginning and we will continue to apply this innovative thinking to the Uncarrier offers we create and to the internal operations of our company, which taken together are driving significant shareholder value creation."

T-Mobile's newest offer, called Jump!, allows customers to upgrade their device twice every 12 months. The program requires that customers spend an extra $10 per month, but it lets them switch to a brand new phone up to two times a year. The program just launched several weeks ago, however, and didn't play a role in T-Mobile's second-quarter numbers.

T-Mobile has also made incredible progress with its LTE network. The company first launched LTE in Las Vegas early this year. Now its 4G network covers 157 million users across 116 markets. T-Mobile says it is on track to reach its goal to cover 200 million users with 4G LTE prior to the end of 2013. Further, T-Mobile is expanding the reach of its MetroPCS prepaid brand, which launched in 15 new markets in recent weeks and will reach yet more in the weeks ahead.

T-Mobile has come a long way since its days as an AT&T takeover target. Legere's team is making good on the challenger status of the country's fourth-largest network operator. It will be interesting to see how much further it can go.

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