T-Mobile Has a Big Correction for Its Postpaid Subscriber Additions

Last quarter, T-Mobile (NASDAQ: TMUS) blew past analysts' expectations for postpaid phone net subscriber additions. The wireless carrier reported 786,000 new subscribers, where analysts were only expecting about 607,000 net additions on average.

But the outperformance wasn't because a lot of new subscribers signed up for T-Mobile. It was that T-Mobile added hundreds of thousands of new "lines" through its DIGITS product, which provides a virtual phone number to ring multiple phones. Customers get a free DIGITS number with T-Mobile's high-end unlimited plan.

At the Goldman Sachs Communicopia Conference, CFO Braxton Carter told the audience that management has heard investors loud and clear. If they want transparency, T-Mobile's going to give it to them. The company's third-quarter report will retroactively reclassify DIGITS subscribers from postpaid phone to its other postpaid category, which includes connected devices.

How big is the impact?

Carter didn't give an exact number on how many people signed up for DIGITS in the second quarter. He did say the high end of analyst estimates was fairly accurate. New Street's Jonathan Chaplain estimated that DIGITS accounted for about 200,000 subscribers in the second quarter following the May product launch. Deutsche Bank analysts estimate the number was closer to 250,000.

That would put its actual postpaid phone net add number below the Street's estimate. We won't know the exact impact until T-Mobile reports its third-quarter results next month, though.

The impact for this quarter will be much more mild, according to Carter. He expects fewer than 100,000 DIGITS sign-ups despite twice the amount of time in the market. That's the impact of the product launch and the free offer to its top unlimited plan subscribers.

T-Mobile should provide even more details on DIGITS

While T-Mobile's management is doing a very commendable thing, clarifying the focus on postpaid phone subscribers, it could do more to give greater insight into DIGITS customers. Lumping them in with its connected device subscribers can muddle the impact as well.

DIGITS is somewhere between a postpaid phone line and a connected device when it comes to strategic positioning. In fact, the reason T-Mobile counted DIGITS subscribers as postpaid subscribers in the first place, as COO Mike Sievert pointed out, is because it costs the same amount as adding a line on its Simple Choice plans -- $10 per month. And it can provide the same benefits to customer churn as adding an entire line. For some, it could provide even greater customer loyalty, as it's a service unmatched by any of T-Mobile's competitors.

Any competitor, however, can service tablets, Internet of Things devices, and mobile hotspots. That makes customers with a phone and connected device more susceptible to switching than those with a DIGITS number.

While the success of DIGITS has been very good so far -- so much so that T-Mobile's already raised the price of its top unlimited plan -- there's no guarantee the success will continue. In that regard, it makes sense for T-Mobile to shelter the product's subscriber numbers until it's firmly established just as many other businesses don't give exact user details on new products. Still, investors should look for commentary from management in the future about the number of DIGITS subscribers on the network and how it's impacting subscriber churn.

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Adam Levy has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.