T-Mobile USA parent company Deutsche Telekom lowered its earnings guidance for 2009, citing unexpectedly low sales in the United States, United Kingdom and Poland.
The company expects adjusted earnings before interest, taxes, depreciation and amortization to be 2 percent to 4 percent below last year’s results. Deutsche Telekom will report its first-quarter results on May 7.
Deutsche Telekom said it is freezing wage and salary increases at T-Mobile USA as part of an overall cost-cutting program that includes reducing marketing and travel expenses.
The company is expanding its 3G network and 3G handset offerings to strengthen its competitive position, as well as accelerating the overlay of its proprietary 2G network to reduce roaming charges paid to other operators.
T-Mobile recently announced a $50 all-you-can-eat post-paid plan for long time customers and seems to have lowered its credit standards in a pursuit for new customers, a tactic that backfired for Sprint and caused long-term damage in that company’s subscriber base. T-Mobile has made a concerted effort to attract prepaid customers, who tend to have lower credit scores and higher churn than postpaid customers. The company’s Flex Pay program also panders to prepaid subscribers and does not require a long-term contract.
However, the economic downturn has led to a widespread decline in consumer credit scores, leading to a subsequent boom in the prepaid market. “All the prepaid guys are going to put up strong numbers in the first quarter,” says analyst Chris King at Stifel Nicolaus.
King defended T-Mobile’s foray into the prepaid market, but pointed out that the carrier appears to be getting pinched by aggressive price competition from other prepaid carriers. Sprint Nextel’s Boost unit, Leap Wireless International and MetroPCS are all jockeying for position, forcing T-Mobile to defend both its middle-ground market and prepaid offerings. “To the extent that T-Mobile is the low-cost postpaid provider, that’s where they’re going to get pinched by the prepaid,” King says.