T-Mobile, With iPhone, Is Preparing to 'Disrupt' the Industry

T-Mobile, whose end had seemed nigh, has made a rather convincing argument that it has all the pieces in place to soon disrupt the mobile industry.

T-Mobile is getting ready to disrupt the mobile industry.

At parent-company Deutsche Telekom's Capital Markets Day in Germany Dec. 6, executives laid out their plans for turning around the ailing carrier and becoming a major market force.

During the third quarter, the nation's fourth-largest carrier saw service revenues fall by 8.7 percent, as nearly half a million postpaid clients took their business elsewhere—likely to a competitor with an iPhone. During a Nov. 8 earnings call, executives had put a hopeful spin on things, saying that their recently signed deal to merge with MetroPCS would soon pay off. And there was also the upcoming Long-Term Evolution (LTE) network—a benefit of the $4 billion and portion of AT&T spectrum that T-Mobile received after spending a rather progress-free 2011 waiting to see whether the federal government would approve AT&T's attempt to buy it. (It didn't.)

At the Capital Markets Day, highlighting how various recent deals fit together into a greater whole, they made a more convincing argument for a newly emboldened T-Mobile.

Most notably, CEO John Legere, new to the role as of September, announced that in 2013, T-Mobile would finally sell Apple products. He didn't specify which ones, however, or say that it would offer the very latest iPhone model. The device he pulled from—and quickly returned to—his pocket seemed to be the iPhone 4S, not the iPhone 5.

"A certain number of customers wouldn't come to the store if we didn't have the iPhone," said Legere, explaining that the carrier's problem, or part of it, was quite clear. "It had just a definite churn impact, and we worked very, very hard on a deal that makes sense for us.”

Still, this time without an iPhone hasn't been without its upside. "The good news," said Legere, "is we've become an incredible sales machine of the other very competitive devices."

During its iPhone-free time, T-Mobile also accomplished a good deal of what Legere referred to as “table setting.” It worked out the deals with MetroPCS and Apple, it got ahead of its timeline for rolling out LTE, it purchased towers from Crown Castle and it arranged a spectrum swap with Verizon Wireless. The result, said Legere, is that an employee base, which in mid-2011 was "dejected," is now "jumping out of their chairs" with excitement.

"We've got a very excited, invigorated team, which is hugely, hugely important," he said.

CTO Neville Ray, before discussing the "three key pillars" of T-Mobile's network modernization strategy—the introduction of High Speed Packet Access (HSPA) in the 1900 PCS spectrum band, the upgrading of cell sites with "state-of-the-art" radio electronics, and its ahead-of-schedule LTE launch—pointed out that T-Mobile's current network quality shouldn't be overlooked.

In an independent study performed earlier this year, Ray said, "across one-third of the markets that were tested we outperformed Verizon. And you can see some of those markets there, big markets such as New York and Chicago, where we outperformed with 42 HSPA+ the LTE version that Verizon has launched with."

As for that ahead-of-schedule LTE rollout, while the carrier had earlier stated it would begin rolling out LTE in mid-2013, "We're now in a position where we can talk about half of that 200 million [people we'd cover] for the end of the year will be available for our customers by midyear," said Ray.

In areas where the network has already been "modernized," he added, T-Mobile is seeing about 30 percent more data traffic and 10 percent more voice traffic coming onto the network. Plus, dropped-rate calls, already less than 1 percent, will be reduced by a third.

Concluding his remarks, Ray discussed the MetroPCS deal—which includes a user base that upgrades their phones at a particularly quick rate—saying that the aspect that has him most excited is the chunk of AWS band spectrum that the combined networks will create.

T-Mobile will move from a 2x10 spectrum position in LTE to, in 2014 and 2015, a 2x20 spectrum position, he explained, "which will be very, very difficult for almost all of our competitors to match in the U.S. marketplace."

"It will be highly performing, we can double speeds," Ray continued. "This network is going to pack a significant punch at a critical time in the U.S. marketplace—one that I think will be the envy of our competitors."

But it was Legere who delivered arguably the juiciest news—a plan for selling the iPhone, and other devices, that will both lower subscribers' up-front costs and enable T-Mobile to benefit from the iPhone within a year. (Sprint, by contrast, won't benefit from the iPhones it sold in 2011 until 2015.)

"Customers are really still pissed off at very unpredictable billing, very unclear pricing, restrictive and confusing upgrades and unfair treatment of loyal customers in this whole way that we sell them a phone and bury the costs into a long-term contract and tie them in," said Legere. "We think there is huge room for a challenger to change some of that in a way that the larger players will not be able to, or will choose not to, respond to."

T-Mobile is moving to 100 percent Value Plans—which is what 80 percent of its customers have already been choosing. The plans include the ability to pay, say, $99 upfront for an iPhone and then make payments of $15 or $20 on the device for 20 months or so. By that arrangement, T-Mobile is saved from swallowing the device subsidies that have heavily burdened its peers.

Customers, while on a two-year contract, can also trade in the phone whenever they want.

"We will give you residual value, let you trade in the phone, stay on the contract services that you have," said Legere. "There's a lot of capability in it for us. We are able to refurbish those devices."

He called the Value Plans "step one" in the many steps T-Mobile is taking to "disrupt the industry."

"Trust me," he continued, "the way we will roll this out in the unshackling, and the lack of being attached and the ability to constantly upgrade devices and to see exactly what you're being charged is going to be a big deal for customers and a big deal for the brand and a tough one for [our rivals] to respond to."

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