T-MobileNot surprisingly, T-Mobile’s Un-Carrier strategy is generating serious subscriber growth, as the company’s first quarter results, announced today, reveal. The question now is how the rest of the industry will respond, now that the financial impact of T-Mobile’s strategy is public knowledge.

T-Mobile’s net additions were 2.4 million – a result the company attributes to a 23% quarter-over-quarter increase in gross additions combined with improved postpaid churn. The company’s postpaid churn was 1.5% for the quarter, down 20 basis points compared to the previous quarter and down 40 basis points year-over-year.

Mind-Bending Results
Moffett Nathanson Research called T-Mobile’s subscriber gains “mind-bending.” According to the firm, which specializes in financial analysis of the communications industry, T-Mobile’s net post-paid phone additions were higher than those of AT&T and Verizon combined. The researchers also noted that T-Mobile’s additions have increased three-fold over the last five quarters.

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T-Mobile used some aggressive tactics to get its new customers, including paying as much as $650 per line to get customers of other companies to switch. Part of the money (as much as $350 per line) went toward paying early termination fees (ETFs) to the customer’s previous carrier.  The rest of the money (up to $300 per line) went to purchase the customer’s old phone.

When this offer was announced in January, some industry observers expressed concerns that while this approach would attract new customers, it would entail some serious financial penalties. But the Moffett Nathanson researchers today argued that T-Mobile’s first quarter gains came without any major negative impact on the company’s business.

They note, for example, that T-Mobile’s post-paid average monthly revenue per user was down 7.5% year-over-year but they said that occurred because the company has encouraged customers to purchase their own devices, which caused an accounting change and moved some revenues into a different category.

T-Mobile Paid ETFs for 21% of New Postpaid Customers
T-Mobile revealed that 21% of gross new postpaid first quarter additions were customers who took the company’s offer to pay early termination fees. Based on that and other data in T-Mobile’s first quarter results, Moffett Nathanson estimated that the company paid an average of $202 for each customer whose termination fee it paid.

Calling this a “relatively modest number,” the researchers argued that “it suggests that fears of unsustainability for this kind of program were misplaced.” The downside is that the researchers believe this revelation will drive other wireless companies to mimic T-Mobile’s ETF offer, potentially generating higher industry-wide churn.

Ironically, although T-Mobile’s Un-Carrier strategy has been directed most aggressively toward AT&T, Moffett Nathanson’s data shows that AT&T’s share of post-paid phone additions increased from about 23% to 28.8% between fourth quarter 2013 and first quarter 2014, while Verizon’s share fell from about 40% to 31.5% and Sprint’s fell from 15% to 12%.

When I talked to Current Analysis Senior Analyst Lynette Luna last week after AT&T’s results had been announced, she attributed a large part of AT&T’s positive subscriber numbers to an increase in tablet subscriptions – business she said the company has been aggressively pursuing.

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