Add to del.icio.us     Digg this

Apr. 22, 2009

T-Mobile USA parent company Deutsche Telekom today has lowered its earnings estimate for this year, citing unexpectedly lower sales in the U.S., the U.K. and in Poland.

Deutsche Telekom warned that it is freezing wage and salary increases at T-Mobile as part of an overall cost-cutting program that includes reducing marketing and travel expenses, both in the U.S. and abroad.

Deutsche Telekom is now expecting adjusted earnings before interest, taxes, depreciation and amortization to be about two percent to four percent below 2008’s results. The company will report its first-quarter results in two weeks.

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 targets prepaid subscribers and does not require a long-term contract.

T-Mobile USA 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 wireless operators.

But now the economic downturn has led to a severe and widespread drop in consumer credit scores, leading to a subsequent boom in the prepaid market.

Wireless industry analyst Chris King at Stifel Nicolaus says “All the prepaid companies are going to put up strong numbers in the first quarter.”

He also defended T-Mobile’s foray into the prepaid market, but pointed out that the mobile carrier appears to be getting squeezed by aggressive price discounting from other prepaid wireless carriers.

Sprint Nextel’s 'Boost' division, Metro-PCS and Leap Wireless are all getting ready as well, forcing T-Mobile to defend both its middle-ground market and prepaid offerings.

“To the extent that T-Mobile is the lowest-cost postpaid provider, that’s where they’re going to get squeezed the most by the prepaids,” King added.

It will be interesting to see how this new trend develops, and to see if other mobile operators will get pressured as well.

Add to del.icio.us     Digg this

    This article was featured on Business 5.0 and on Tech Blog.

Source: Deutsche Telekom.