Takeaways from JAT Capital's Fourth-Quarter 13F (Part 7 of 23)
JAT Capital and T-Mobile US
In 4Q14, JAT Capital sold its remaining stake in T-Mobile US (TMUS). The fund held roughly 3.3 million shares, which had accounted for 1.6% of the fund’s third-quarter US long portfolio.
TMUS makes up 2.63% of the SPDR S&P Telecom ETF (XTL), 5.45% of the iShares Dow Jones US Telecom ETF (IYZ), and 0.16% of the Vanguard Extended Market ETF (VXF).
Overview of T-Mobile
T-Mobile is the fastest-growing provider of wireless communications services in the US. The company serves over 55 million customers in the postpaid, prepaid, and wholesale markets.
Through its business combination with MetroPCS Communications, TMUS has gained ground in the prepaid services market, where TMUS has nearly 16 million subscribers. AT&T (T) and Verizon (VZ) have subscriber bases of about 11 million and 6 million, respectively. TMUS is only slightly behind Sprint (S), which has a little over 16 million prepaid customers.
Thwarted merger plans
In 2014, Japanese telecom giant SoftBank (SFTBF) was in advanced talks with T-Mobile regarding a potential merger. The year before that, SoftBank had acquired an 80% stake in Sprint, the third-largest telecom operator in the US.
The goal of SoftBank’s consolidation plan was to break the duopoly between AT&T and Verizon. However, talks between SoftBank and TMUS fell through in August 2014 because the Federal Communications Commission was against the idea of any combination among the top four telecom service providers.
The French telecom company Iliad SA had previously expressed an interest in TMUS. However, Iliad discontinued its pursuit after failing to attract interest from T-Mobile’s majority owner Deutsche Telekom with the lowball offer of $33 per share for 67% interest. Since then, DISH Network (DISH) has emerged as a potential buyer.
Solid fourth-quarter performance
T-Mobile’s fourth-quarter revenues were up 10.9% sequentially and 19.4% from the prior-year quarter to $8.2 billion. Net customer additions for both prepaid and postpaid services drove this growth.
As illustrated in the chart above, the company led the industry with postpaid phone net customer additions of 4.0 million for 2014. A key contributor to the rise in the company’s postpaid phone subscriber base has been the “un-carrier” proposition. This proposition addresses several customer pain points and enhances wireless experience at an affordable price.
The overall customer base for TMUS increased for the seventh consecutive quarter and reached 55 million, representing an 89% increase from a year earlier.