T-Mobile added 980,000 subscribers in first quarter, beating out its much larger competitor Sprint and nearing the 1.2 million subscriber gains of the country’s largest carrier AT&T.

The U.S. mobile arm of pan-European operator Deutsche Telekom continues to be its biggest wireless growth driver, boosting its customer base quarter after quarter off new service plans like its myFaves calling circle and racking up customer satisfaction awards from J.D. Power and Associates. The operator now has 26 million subscribers, making it half the size of its nearest competitor Sprint, which added 600,000 net subscribers in Q1, all of them pre-paid and wholesale.

Revenues for the quarter reached $4.56 billion, up 12.6% from the first quarter of 2006. Operating income for the U.S. division increased $90 million to $599 million over the same period. The carrier’s high rate of customer additions was tempered by turnover. The company recorded a monthly churn rate of 2.6%, down from 2.7% year-over-year but among the highest in the industry. Its postpaid churn, however, fell from 2.1% to 1.9%. T-Mobile has 4 million prepaid subscribers, about 15% of its customer base.

Average revenues per subscriber increased from $51 a month in Q1 of 2006 to $52 last quarter. T-Mobile said that the myFaves promotion--which allows customers unlimited calls any five phone numbers, landline or wireless--has been one of its key success drivers, allowing it to not only add more customers but higher-paying postpaid customers. Postpaid ARPU increased from $54 to $56 a customer. The promotion expenses associated with myFaves may also be having an effect on the carrier’s bottom line, though. It reported that the cost of acquiring each new customer last quarter grew from $280 to $310 year over year.

Data revenues for the quarter came in at $570 million and accounted for $7.50 or 14.3% of monthly ARPU, up from $6.50 in the fourth quarter and $5.10 in Q1 of 2006. T-Mobile this year, however, began reporting its Wi-Fi hotspot revenue in its overall data sales, and Wi-Fi accounted for 60 cents of the $1.00 increase quarter over quarter. T-Mobile is the only Tier I carrier that has yet to offer a 3G service, but it is in the process of building a UMTS-High Speed Downlink Packet Access network over its recently acquired Advanced Wireless Services (AWS) licenses.