Carriers in the U.S. have an iron grip on the mobile phone industry. As a result, Americans pay more on average for cell service, particularly wireless data, than the rest of the world does. For years now, the standard setup has locked consumers into a two-year contract with limited possibility of parole. In return for a cheap or free smartphone upfront, consumers sign on to expensive contracts that bring in big profits for carriers and the only way out is to pay a hefty early termination fee (ETF).
Over the last year or so one company has been shaking things up and threatening the status quo with a lot of fancy new ideas. T-Mobile, led by maverick John Legere, has introduced a new way of doing things without the standard two-year contract lock in. Determined to climb from a distant 4th place in the market and get competitive again, the self-branded “Uncarrier” has been improving its network, introducing transparent pricing that’s fairer, and throwing in incentives like free international roaming.
The competition has been forced to respond to T-Mobile’s many broadsides, including its offer to pay up to $650 with its ETF buyout plan, designed to get families to ditch their current carriers, trade in their handsets, and sign up with T-Mobile. There’s no doubt the other big three are running scared and we’re finally seeing some genuine competition.
How did this happen?
Turn the ship around!
Cast your mind back two years and T-Mobile was fast becoming irrelevant, trailing behind AT&T, Verizon, and Sprint. It didn’t have the iPhone, it didn’t have the best choice of Android smartphones, and it didn’t have a 4G LTE network. There was a failed attempt to sell the company to AT&T in 2011. After that didn’t come off, parent company Deutsche Telekom decided to invest the cash needed to build an LTE network and reboot the brand. It soon became clear that things would not be improving overnight. The second quarter results for 2012 showed customer losses of 205,000, and, around the same time, a JD Power study put T-Mobile last in terms of customer care performance.
Enter John Legere
In September 2012, T-Mobile appointed Legere as the new CEO and he set about changing its fortunes. No stranger to the telecommunications industry, Legere was with AT&T for nearly 20 years, before working at Dell, and then serving as the CEO of Global Crossing for a decade. Upon joining T-Mobile he wasted no time in formulating a plan to shake up the industry, and he had no qualms about criticizing the competition in the process.
What a stupid, broken, arrogant industry - John Legere about US carriers
In January 2013, Legere stole the headlines at CES when he took to the stage in a t-shirt and baseball cap to unveil what T-Mobile’s new “Uncarrier” branding was all about. A contract-free unlimited plan including unlimited data, texts, and calls for $70 per month. Customers could pay full price for a new smartphone or bring their existing device with them.
He was shockingly open and honest, joking on stage with reporters. He even called AT&T’s network “crap” and vowed to deliver a better deal for customers. He also explained that the new philosophy was all about tackling pain points that are common across all customers, namely lack of transparency in the billing structure, overage charges, and a lack of flexibility with contracts that tie people down.
Keeping it simple
In March, Legere and T-Mobile expanded the vision further. New Simple Choice plans would deliver unlimited texts and calls with 500MB of data for $50 per month, 2.5GB of data for $60 per month, and unlimited data for $70 per month. Customers would also have the option of starting a separate device plan to buy a new smartphone for a low upfront cost and then pay it off in 24 monthly installments. They could leave at any time, but they’d still have to pay the remaining balance on the device. Alternatively they could buy a new full price phone or bring their existing device with them.
Things got a little more complicated in July when the company announced its JUMP program at an extra $10 per month, which offers the chance to upgrade twice a year, as long as you’ve been on the plan for at least six months. That means you can hand back your existing device and buy a new one more often, but you’ll pay a premium for the privilege.
In October, T-Mobile kept the momentum rolling with free data for life for tablets. Customers would get 200MB of free data every month with any tablet for as long as they own and use the device on T-Mobile’s network.
Winning new customers
For the full year of 2012 T-Mobile claimed net customer additions of 203,000. Signs that the new strategy is working were there for all to see in T-Mobile’s 2013 results, total net customer additions of 4.4 million for the year.
Expectations were heightened for CES this year as the outspoken Legere took to the stage and offered an ETF buyout plan aimed at families. He explained, “We’re giving families a ‘Get Out of Jail Free Card. Carriers have counted on staggered contract end dates and hefty early termination fees to keep people bound to them forever. But now families can switch to T-Mobile without paying a single red cent to leave them behind.”
In an effort to preempt the plan AT&T offered T-Mobile customers up to $450 per line to switch, but T-Mobile’s announcement trumped that by offering up to $650. Customers would get $300 for trading in their existing AT&T, Verizon, or Sprint handset and sign up for a T-Mobile plan, followed by another $350 to pay off the early termination fees.
Expanding the network
In terms of coverage and speed T-Mobile has been playing catch up. It is still rolling out 4G LTE and recently announced plans to upgrade its 2G network to 4G LTE to cover 250 million US customers by the end of the year. Verizon’s current claims about having the best coverage don’t take T-Mobile’s HSPA+ network into account, which has got Legere speaking out again, “Verizon’s ink blots massively understate our coverage and don’t begin to represent the actual customer experience on T-Mobile’s network.”
T-Mobile has expanded quickly and because it has fewer customers right now there’s more bandwidth available to deliver faster speeds. If you live in a big city, then T-Mobile’s coverage is likely to be comparable to or better than the competition, but that’s probably not the case elsewhere.
On T-Mobile’s place in the industry: “If you thought we went away, if you thought T-Mobile wasn’t going to be a significant player in this industry, think again.”
It’s not clear if Deutsche Telekom is still looking to sell T-Mobile. Now that its fortunes are turning around, it could command a tempting chunk of change, and there have been persistent rumors that Sprint might be interested in buying, or a merger may be on the cards. Whether the US DOJ Antitrust Division would allow it is another matter — it did block the AT&T acquisition a few years ago.
Whatever happens next, one thing is for certain, T-Mobile is on the up and the other three major carriers are struggling to come up with an answer. Even if you don’t want to make the switch to T-Mobile you could still benefit from the moves it’s making as Sprint, AT&T, and Verizon try to counter with new deals of their own.