The fruits of T-Mobile’s cost-cutting plan began to take shape last week with the first financial quarter of growth after 18 months of decline.
The company grew its profits by 30% to £134m for the period between April and June compared with the previous quarter.
However, the profits are down 13% compared with the same quarter in 2008. Significantly, T-Mobile made a positive cash contribution of £105m for the quarter to its German parent company, after a historically low cash capital expenditure of £29m for the same period in 2008.
The contract base remained unchanged at 4.1 million customers from the previous quarter. The prepaid base showed a net loss of 87,000 customers from the previous quarter to finish at 12.5 million. The prepaid base includes 3.2 million Virgin Mobile MVNO customers – a decline of 34,000 in the quarter.
The numbers mark a shot of optimism for the UK arm, which has been subject to a review by JP Morgan in order for T-Mobile’s parent company to consider its options. Vodafone and O2 have been circling the UK business over a potential deal with Deutsche Telekom, to buy, merge or even swap T-Mobile with an overseas subsidiary.
T-Mobile has been the worst performing operator in the UK over the last two years, with revenue falling from £1.14bn in Q3 2007 to £779m in the second quarter of this year. Its profits nearly halved in that period from £248m to £138m.
The operator’s new MD, Richard Moat, is now embarking on building a business around offering the cheapest deals for customers spending over £40 per month, and supporting that by cutting costs across the business to maintain its existing 19% profit margin.
The business had already embarked on a cost-cutting process prior to Moat joining, with much of its call centres out-sourced to the Philippines.
T-Mobile has also set about offering Apple iPhones to its high spending customers to stop them defecting to O2, and has boosted its popular Flext tariffs by injecting more value into them.
Customers are being offered £225 of minutes and texts per month, including 08 numbers, voicemail and international calls as well as unlimited internet on a £40 per month tariff.
That value rises to similar propositions on £50, £60, £75 and £100 per month tariffs offering a maximum of £775 worth of minutes and texts.
Moat was also quoted last week as saying he was aiming to make T-Mobile the third biggest operator by share of revenue in the UK, which will mean leap-frogging Orange.
Moat said: ‘I firmly believe we have been in fourth place for too long and we have to develop ambition to get away from there.’
Mobile revealed last week that Moat will cut all contractors, take a tougher line on staff not meeting their objectives and remove them from the business. He is also expected to reduce how much T-Mobile spends on devices, including radically reducing its handset range, and is even understood to have told some manufacturers it won’t stock many handsets that cost over €220.