T-Mobile Q3 2026: EPS up 34% to $3.22 on a weak 2025 base; postpaid account additions fell 31%

T-Mobile's third quarter looks spectacular at the bottom line: diluted earnings per share (EPS, profit divided by the number of shares) rose 34% to $3.22 and net income 27% to $3.46 billion, on revenue up 7.4% to $23.58 billion. Most of that is real, but not all of it. A year ago the quarter carried a $278 million write-off of billing-system software that did not recur, and T-Mobile now has 4.9% fewer shares after heavy buybacks. Meanwhile the customer numbers kept softening: postpaid net account additions fell 31% and account churn rose again from a year earlier. This analysis uses the earnings release (8-K Exhibit 99.1), the Investor Factbook (Exhibit 99.2) and the Form 10-Q, all filed on October 28, 2026.

The quarter in numbers

Operating margin is the share of revenue left after running the business, before interest and tax. Core adjusted EBITDA is T-Mobile's preferred profit measure: earnings before interest, tax, depreciation and amortization, also excluding stock pay and items the company calls special (merger costs, restructuring, write-offs). ARPA is average monthly postpaid service revenue per account. T-Mobile no longer reports per-phone figures such as phone ARPU or phone net additions, so the account figures are the closest thing to an industry ARPU it gives.

Takeaway: T-Mobile is now growing by charging each account more, not by adding accounts faster. ARPA growth doubled to 4.2% while net account additions fell 31% and churn rose 12 basis points, and the filing ties both trends to the same plan changes. That trade works as long as the extra revenue per account outruns the customers it costs. In the third quarter it did, but the full-year guide points to a slower fourth quarter.

Where the revenue came from

Service revenue, the recurring monthly bills, grew 6.2% to $19.38 billion. Almost all of the growth came from postpaid (customers billed after the month), up $1.39 billion or 9.3%. The 10-Q attributes this to "higher average postpaid accounts, including following the acquisitions of UScellular and Metronet" and to higher ARPA. UScellular joined on August 1, 2025 and Metronet on July 24, 2025, so the year-ago quarter had only about two months of them. Part of the 9.3% is therefore still acquired growth rather than organic growth.

The rest of the service business shrank:

• Prepaid revenue fell 7.5% to $2.43 billion, from "lower average prepaid customers" and "lower average revenue per customer, primarily from dilution from promotional activity and rate plan mix."
• Wholesale and other service revenue fell 7.5% to $679 million, on lower MVNO revenue, including from DISH and TracFone. MVNOs are other brands that rent capacity on T-Mobile's network.

Equipment revenue rose 13% to $3.93 billion on pricier phones ("higher manufacturer pricing and an increase in the high-end phone mix"). Cost of equipment rose almost as much, by $591 million to $5.44 billion. T-Mobile sells phones below cost to win and keep customers, and that gap widened from $1.39 billion to $1.52 billion. Handset revenue therefore adds to the top line without adding profit.

Why profit grew four times faster than revenue

Operating income rose $1.13 billion, or 25%, on revenue up $1.63 billion. Three things did it:

1. Costs barely moved. Total operating expenses rose only 3%. Selling, general and administrative costs were flat at $6.02 billion: lower payroll and outside-labor costs offset higher bad debt and smaller business-tax refunds. Depreciation rose only 1.3%, to $3.45 billion.
2. Last year's write-off did not repeat. The third quarter of 2025 included a $278 million impairment "of capitalized software development costs related to our billing system." Taking it out, operating income grew about 18%, not 25%.
3. Core profit grew in double digits. Core adjusted EBITDA rose 10.8% to $9.62 billion, or 49.7% of service revenue.

Below operating income, interest expense rose 12% to $1.03 billion "due to higher average debt outstanding and a higher average effective interest rate". The tax rate rose slightly to 23.9% from 23.1%. Neither helped earnings.

What the headline numbers hide

• A soft comparison. The $278 million software impairment cost $208 million after tax, or $0.18 a share, in Q3 2025. Merger costs for UScellular were $0.09 a share this quarter and $0.05 a year ago. Excluding both in both years, EPS rose from $2.64 to $3.31, about 25%, not 34%. T-Mobile does not publish an adjusted EPS, so this is our calculation from the per-share amounts in the Factbook.
• Buybacks did about 5 points of the work. Diluted weighted-average shares fell 4.9% to 1.072 billion from 1.127 billion. That is why EPS (+34%) grew faster than net income (+27%). In the quarter T-Mobile bought back 13.6 million shares for $2.42 billion (cash flow statement) at an average price of $177.31. It also paid $1.09 billion in dividends.
• Cash flow went the other way. Operating cash flow fell 1.6% to $7.34 billion while net income rose 27%. The 10-Q points to a $592 million larger working-capital outflow, mainly from accounts payable and inventory. Inventory absorbed $892 million of cash in the quarter, and the balance stood at $3.09 billion against $2.41 billion at year-end. Operating cash flow is still 2.1 times net income, which is normal for a carrier with $3.45 billion of quarterly depreciation, but the direction is worth noting.
• Free cash flow rose because spending was deferred. Adjusted free cash flow rose 5.3% to $5.07 billion because capital spending fell 14% to $2.27 billion. The release calls that "planned timing of capital purchases," not a lasting cut. The full-year capex guide of about $10.0 billion implies roughly $2.4 billion in the fourth quarter.
• Bad debt is rising faster than sales. Bad-debt expense rose 30% to $437 million. With losses on receivable sales it reached 1.9% of revenue, up from 1.6% a year ago.
• The spectrum sale is cash, not profit. On August 10 T-Mobile closed the sale of its 800 MHz licenses to Grain Management for $2.9 billion in cash plus Grain's 600 MHz licenses (valued at $690 million). That is why cash rose $2.85 billion in the quarter. No gain was booked in earnings, and the 10-Q says T-Mobile expects about $850 million of related cash income taxes, mostly by the end of 2027.

On balance the quarter is flattered. About a quarter of the 34% EPS gain came from not repeating last year's software write-off and smaller merger costs a year ago. A further 5 points came from a 4.9% smaller share count. Excluding those items, net income still grew about 19% before buybacks, which is a strong quarter, just not a 34% one.

Did last time's read hold up?

Our Q2 2026 analysis expected service revenue growth to slow as the acquisition comparisons washed out. It did: service revenue growth fell to 6.2% from about 8.9% in Q2, and postpaid service growth to 9.3% from about 13%. We also flagged net account additions and account churn as the numbers to watch, because both had moved the wrong way. They worsened again: net additions fell 31% year over year (Q2 fell 13%) and churn rose 12 basis points (Q2 rose 7). We expected profit to catch up with EBITDA as merger charges faded, and that happened faster than expected. Merger costs fell to $129 million from $182 million in Q2, and net income grew 27% against roughly 0.5% in Q2. The Grain sale closed in the quarter with no material income-statement effect, as T-Mobile had said it would. The one thing we underestimated was ARPA, which grew 4.2% rather than the roughly 2% we assumed would carry the business.

Guidance and what comes next

T-Mobile raised its full-year 2026 profit and cash guidance at the midpoint:

The board also raised the quarterly dividend 15% to $1.17 a share, payable December 10. T-Mobile bought back another $791 million of stock between October 1 and October 23. On October 1 it completed its $671 million investment for 50% of the i3 Broadband fiber joint venture.

My read: the guidance implies a slower fourth quarter. Year-to-date core adjusted EBITDA is $28.40 billion, so the $37.4 billion midpoint leaves about $9.0 billion for Q4. That is roughly 7% above Q4 2025's $8.45 billion, against 10.8% growth this quarter. With 768,000 net account additions so far, the ~1.0 million target leaves about 230,000 for Q4, below the 261,000 of Q4 2025. Implied Q4 free cash flow of about $4.3 billion is roughly flat with a year ago once capital spending returns to about $2.4 billion. Lower merger costs and the smaller share count should still keep EPS growing faster than EBITDA. The number that decides whether this strategy works is churn. If the churn from the plan changes proves as "temporary" as the filing calls it, 4% ARPA growth is a good trade. If churn stays above 1%, T-Mobile is buying revenue per account with customers.