Editor’s Note: Welcome to our weekly Reality Check column where C-level executives and advisory firms from across the mobile industry share unique insights and experiences.
This past week, many in the telecommunications community began to take T-Mobile US seriously. For the second quarter in a row, the Bellevue-based wireless carrier posted net additions of over one million subscribers. They did this with minimal machine-to-machine net additions, and with only a few thousand tablets. And in the process, they outpaced the rest of the wireless industry in (smart)phone net additions.
Here’s the past eleven quarters of the wireless industry’s postpaid net additions:
Many of those who look at the industry have compared T-Mobile US’ performance to Sprint, noting that the upstart is gaining on the No. 3 wireless provider (although they are close on branded prepaid, they lag Sprint by about seven million postpaid subscribers when you allocate a portion of T-Mobile US; 3.4 million M2M customers to retail).
T-Mobile US is already the third most profitable wireless carrier, generating more than $1.2 billion more in adjusted earnings before interest, taxes, depreciation and amortization over the past four quarters.
The real question is: “Should we have been comparing T-Mobile US to AT&T Mobility?” There’s a lot of back-and-forth about the failed merger, and everyone winced at the thought of T-Mobile US merging with a no-contract CDMA provider named Metro PCS. Then we have the bizarre investor day in Germany with a new CEO who “didn’t even come from our industry” (an actual quote from a wireless colleague of mine who now admits he underestimated John Legere’s understanding of customer buying behaviors and handset development).
Look at the 2013 year-to-date postpaid growth for T-Mobile US and AT&T Mobility above. On a purely postpaid basis, AT&T Mobility has grown 1.21 million postpaid net additions, and T-Mobile US has grown 1.14 million. A mere 73,000 net additions separate the two, and that does not include M2M for T-Mobile US (340,000 net additions so far in 2013). This is an incredible achievement for T-Mobile US considering:
–AT&T Mobility’s network serves 55 million more of the U.S. population, which means that in the markets where AT&T Mobility and T-Mobile US compete, T-Mobile US has added more customers than AT&T Mobility.
–AT&T Mobility has a sizable enterprise presence. This year has been a terrific year for enterprise customer takeaways from Sprint as they completed their iDEN transition. So long as AT&T Mobility took away 73,000 more iDEN customers than T-Mobile US (which is highly likely), T-Mobile US acquired more postpaid consumer customers than AT&T Mobility.
–AT&T Mobility had the iPhone for the entire year, T-Mobile US did not. It’s hard to remember a time when T-Mobile US did not
have the iPhone, but they have only been selling the iPhone5/5C/5S since mid-April. They did convert a large number of AT&T Mobility iPhones to the T-Mobile US network prior to selling new iPhones (1.7 million as of the December 2012 investor day).
–AT&T Mobility has been selling a lot of tablets to enterprises and consumers, while T-Mobile US is just getting started. While the postpaid base does not include connected devices, AT&T Mobility’s shared plans clearly make the process of adding a tablet easier.
T-Mobile US already has more prepaid customers than AT&T Mobility (15 million for T-Mobile US vs. 7.4 million for AT&T Mobility). They are clearly winning share versus AT&T Mobility in the mobile virtual network operator/wholesale space (1.039 million gain for T-Mobile US vs. 951,000 loss for AT&T Mobility year-to-date). They are much smaller in postpaid (AT&T Mobility is 3.3-times larger in total, and probably 2.1-times larger in consumer).
For the first time, however, T-Mobile US is taking smartphone share from AT&T Mobility. Barring any dramatic changes in the remaining months of this year, T-Mobile US will likely take consumer share from AT&T Mobility in 2013. That’s a huge headline that no one would have predicted at the beginning of the year.
T-Mobile US should be compared to AT&T Mobility and not Sprint. The prospects of SIM card swaps make it easier to move networks (just ask the MetroPCS representatives who are converting customers in droves). AT&T Mobility will soon complete the acquisition of Leap Wireless, who was once considered a MetroPCS merger partner. Leap and MetroPCS currently go head-to-head in many markets, and it’s about to get a lot worse with MetroPCS expanding into Cincinnati, Cleveland, Denver, Phoenix, Pittsburgh and Portland (note: with the exception of Cleveland, all of these markets are legacy Leap/Cricket areas). T-Mobile US has the third largest LTE footprint today, and will likely end 2014 with 85% of the LTE coverage of AT&T Mobility.
Interestingly, T-Mobile US has and will claim that this has been their goal all along. In the December 2012 investor day, John Legere had to correct himself and correctly state “Our focus is on AT&T” (he had originally stated that T-Mobile US’ focus was on Sprint). The analyst and investment community should have taken him more seriously.
With two quarters of success as a backdrop, what part of the telecom industry is left to disrupt? What can T-Mobile US do to beat AT&T Mobility? Here are some ideas:
–Win more enterprise business. Start with Cbeyond (full disclosure: I am on the technical advisory board of Cbeyond), then move on to Time Warner Telecom, XO and others. Certify 20,000 “T-Mobile ready” buildings with superlative coverage by the end of 2014. Rally around the “beat the indoor beast” mantra, which creates more cringing than any other single problem in the telecommunications industry (having both an AT&T Mobility and Sprint phone, I can attest that they cannot keep their speed promises in many buildings). Eliminate that “bring-your-own-data cringe” customers feel when they enter an office building, hospital, courtroom or packed arena. Make the partnerships profitable for both buyer and seller, and build enterprise credibility on a building-by-building basis.
–Delight customers with exceptional application experiences. Over three years ago I wrote a Reality Check article for RCR Wireless called “The tweet guarantee.” There’s a lot of value in a superior Pandora, Spotify or Rhapsody (or Netflix) experience. No one owns the application experience in wireless – yet (Verizon Wireless is very close based on several devices I have recently tested). T-Mobile US can own this space, but it’s going to require a data center/content management/edge network strategy that is better than AT&T’s. Plenty of Internet/broadband partners willing to help here, including Level 3, Cogent, Savvis and the underlying applications providers. And, once Sprint Spark is launched on SprintLink (one of the largest backbones in the world), low-latency applications providers are going to flock to Sprint.
–Improve national coverage. I know this sounds like a broken network, but Sprint is T-Mobile US’ friend here. Both lack the last 50 million potential customers covered. Partner with Sprint to blanket the Mississippi valley (U.S. Cellular spectrum) and break the small town duopoly that Verizon Wireless and AT&T Mobility currently enjoy. Last year, we went into some depth on several areas where Sprint and T-Mobile US could get started (the “Dear John” October 2012 is available upon request).
While many of you want to add complex wireline/wireless product partnerships or inorganic growth options to the list, these take a lot of time and energy. T-Mobile US is rightly focused on daily execution because it’s working. Make gains from the current strategy throughout 2014, and then contemplate more complex activities.
As the title of this week’s article implies, this has been a good year for T-Mobile US. Sprint had blowout years in 2004 and 2005, right before the Nextel merger. AT&T had a terrific wireless performance in 2009 and 2010, just as iPhone exclusivity ended. Verizon Wireless had a blockbuster year in 2012 and is likely to replicate it again this year. These are examples of good years, not dynasties. T-Mobile US has had a good 2013, and these typically come in pairs. To create a dynasty, T-Mobile US needs more – a lot more.
Jim Patterson is CEO of Patterson Advisory Group, a tactical consulting and advisory services firm dedicated to the telecommunications industry. Previously, he was EVP – Business Development for Infotel Broadband Services Ltd., the 4G service provider for Reliance Industries Ltd. Patterson also co-founded Mobile Symmetry, an identity-focused applications platform for wireless broadband carriers that was acquired by Infotel in 2011. Prior to Mobile Symmetry, Patterson was President – Wholesale Services for Sprint and has a career that spans over twenty years in telecom and technology. Patterson welcomes your comments at jim@pattersonadvice.com and you can follow him on Twitter @pattersonadvice.
