T-Mobile Bets on LTE, Hopes for iPhone as Losses Mount

T-Mobile is doing all it can to get an LTE network and an iPhone. Without these, it lost nearly half a million subscribers during its third financial quarter.

T-Mobile continues to suffer the consequences of having neither an iPhone nor a 4G Long Term Evolution (LTE) network—though it has hopes for the former and plans for the latter.

During its fiscal 2012 third quarter, T-Mobile announced Nov. 8, that revenues fell by 6.4 percent year-on-year and 492,000 postpaid subscribers took their business elsewhere. T-Mobile also continued work on its Challenger Strategy, which includes the rollout of Evolved High-Speed Packet Access (HSPA+) technology on the 1900 PCS spectrum and eventually LTE, and is the carrier's hope for creating a new story of growth in the years to come.

Though T-Mobile is courting owners of older, unlocked iPhones from AT&T, which it can support on its slower, 2G network, an LTE network will allow it to support new iPhones at optimal speeds.

"We continue to make solid progress with our Challenger Strategy, as evidenced by our strong performance in prepaid services; the growing attractiveness of our Value and Unlimited plans; the execution of our network modernization program and the expansion of our popular handset portfolio," T-Mobile CEO John Legere said in a statement.

Legere added that T-Mobile's announced merger with smaller prepaid-focused carrier MetroPCS will also help with its turnaround.

"With MetroPCS, we aim to become the industry's leading value carrier—for both prepaid and contract service offerings—with the scale, spectrum and financial resources to aggressively compete with the other national carriers," said Legere.

Analysts agree that the MetroPCS deal—which was announced Oct. 3 and will reportedly result in a company with approximately 42.5 million subscribers and $24.8 billion in revenue—will help T-Mobile.

"Though this consolidation will not help T-Mobile in the postpaid market, where it has continued to hemorrhage subscribers ... it suggests T-Mobile is placing a greater emphasis on prepaid to counterbalance the struggles of its postpaid business," Eric Costa, an analyst with Technology Business Research (TBR) wrote in a Nov. 8 report.

"Although the merger will leave T-Mobile in control of fourth place behind Sprint, AT&T and Verizon in terms of subscribers, it combines two of the largest prepaid operators and allows them to take control of a segment forecasted to grow in coming years," Costa added.

T-Mobile, like the rest of the industry, needs spectrum to grow out its LTE network, and during the third quarter, it also completed an Advanced Wireless Services (AWS) spectrum purchase and exchange with Verizon Wireless. Involving licenses in 218 U.S. markets, the deal improved T-Mobile's spectrum situation in 15 of the top 25 markets.

Rene Obermann, CEO of T-Mobile parent company Deutsche Telekom, said in a statement that the spectrum perks of the MetroPCS deal will enhance the new company's position in key metropolitan areas and "provide a path to an at least 20 by 20MHz LTE deployment in 90 percent of the top 25 U.S. markets."

Deutsche Telekom also reported earnings Nov. 8, and while its operating profits and sales topped analysts' estimates, Bloomberg reported, "a [$9.4 billion] write-down on its T-Mobile USA unit sank the German former phone monopoly into its biggest quarterly net loss in a decade."

A downside of the MetroPCS spectrum is that it's something T-Mobile will need to wait on. The carriers' networks operate on incompatible technologies, so the plan is to gradually switch MetroPCS users, when they upgrade devices, over to T-Mobile technology.

Still, said TBR's Costa, the deal, overall, plays to T-Mobile's strength—the prepaid segment—and will enable it to offer prepaid services over LTE, "which is unique in the market and gives T-Mobile a significant marketing advantage."

Regarding T-Mobile's ability to compete in the postpaid market, it's making the necessary investments to turn its business around, wrote Costa, "yet the road to recovery is long and subscriber losses will continue heading into 2013."