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T-Mobile Raises 2015 Subscriber Forecast; Results Top Estimates

Aggressive pricing and marketing pay off.

T-Mobile US on Thursday posted better-than-expected second-quarter profit and revenue and raised its 2015 subscriber forecast for the second time this year, boosting shares by 5 percent.

The No. 4 U.S. wireless by revenue now expects to add 3.4 million to 3.9 million postpaid users, or customers who pay on a monthly basis based on usage, in 2015, up from 3.0 million to 3.5 million.

Quarterly revenue jumped 14 percent as aggressive promotions helped win customers in the second quarter.

The company has revamped pricing plans, eliminated service contracts and launched marketing campaigns to turn around years of subscriber losses and lure customers from bigger rivals Verizon and AT&T.

While investors have lauded the efforts, the costs have hurt profits. But that could start to improve, Macquarie Research analyst Kevin Smithen said.

“They are starting to see some earnings leverage. … As EBITDA margins climb, that flows through to earnings,” Smithen said.

However, free cash flow fell in the first half of the year, while EBITDA, or earnings before interest, taxes, depreciation and amortization, grew, Smithen noted. He added that T-Mobile would have to start improving working capital, which took a hit in the quarter from the company’s equipment installment plan that lets users purchase mobile devices through monthly payments.

T-Mobile reported key user metrics earlier this month.

The company added a net 2.1 million prepaid and postpaid customers in the second quarter, up from 1.5 million a year earlier. It added one million postpaid customers.

T-Mobile, which calls itself the “Un-carrier,” said the rate at which users switch to other networks, also known as postpaid churn, fell to 1.3 percent from 1.5 percent a year earlier.

Net income fell to $361 million, or 42 cents per share, from $391 million, or 48 cents, a year earlier. This surpassed analysts’ forecast of 18 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose to $8.18 billion from $7.19 billion, beating analysts’ estimate of $7.94 billion.

The carrier took a charge of $34 million in the quarter from the shutdown of its MetroPCS CDMA network and expects additional network decommissioning costs of $350 million to $450 million through 2015.

(Reporting by Lehar Maan in Bengaluru and Malathi Nayak in New York; Editing by Simon Jennings and Jeffrey Benkoe)

This article originally appeared on Recode.net.

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