The T-Mobile Challenge - All is Fair in Love and War

By Peter Bernstein January 10, 2014

The term “Wise Guy” has two meanings.  In its most common form, it refers to a smart aleck. However, it could also be used as language to describe a smart person. What is interesting is when the two accurately describe the same person. It turns out that ramble rousers, despite their over-the-top attention grabbing rhetoric, many times have important things to say.  Such was the case with T-Mobile US CEO John Legere’s speech at the just concluded Consumer Electronics Show (CES). His profanity-laced monolog, filled with derogatory comments about competitors is worth a listen.

The “performance,” since that is what it was, happens to say a lot about the state of competition in the hotly competitive U.S. mobile services market - both now and going forward. It also amplifies, as if more evidence were needed, that Verizon, Sprint and AT&T would like T-Mobile to go away. AT&T tried unsuccessfully and rumors are abound that Softbank is next in line to acquire the spunky #4. However, for the time being, T-Mobile is not just causing a ruckus, but enjoying the limelight. Indeed, having a disrupter in the crowd I think is a good thing. It is why watching and listening closely to what T-Mobile has to say, and what it is doing is important.

This is confirmation of the old saying that “All is fair in love and war.” That is a good thing.

Take that Verizon, Sprint and AT&T

For those who do not have time to watch Legere in action here a few highlights and choice words.

Legere went through a litany of items promoting why T-Mobile has been on a roll lately, and hence became the target of an AT&T promotion aimed specifically at grabbing T-Mobile customers which was announced last week. Comments included:

  • Citing of what he called “real world” speed tests showing T-Mobile’s average data rate for December was 17.8 Mbps compared with 14.7 Mbps for AT&T, 14.3 Mbps for Verizon and 7.9 Mbps for Sprint.
  • Glee over the filing of a “cease and desist” order against AT&T for claims about its network speed. “Do you know how many billboards they’ll have to take down?” Legere joked.
  • The addition in the second and third quarter of 2013 of more than AT&T, Sprint and Verizon combined. Hence, AT&T’s concerns.

And, while there is much in the speech (done impromptu and without notes BTW) that is not fit for print, in an aside about competitors, Legere remarked:

  • “Sprint is a pile of spectrum” that’s waiting to be built out.
  • AT&T is populated with “fat cats that can’t move.”
  • Verizon has “lost sight of customers because of their success.”

He also took jabs not just at the AT&T attempts to take away T-Mobile customers, but also at that company’s just released Sponsored Data program, and what he believes are the easily under-mined and not user friendly family plans and other data packages from Sprint and Verizon.

Warming to his task, T-Mobile also has launched a website aimed at helping competitors’ customers in composing break up letters with their current carriers. And, they have a prominent section on their website that provides instructions on how to switch.

If nothing else, Legere’s feistiness is reflected consistently in the company’s overall persona. A visit to the company website is case in point.

Source: T-Mobile

It includes that new Jump! Program which proclaims that, “You’ve served your last two-year sentence.” It also includes the new offer that T-Mobile will pay up to $650 for customers to switch. As the numbers indicate already, a fickle customer base is ready, willing and able to go for what is perceived as a good deal. T-Mobile has certainly upped the ante. 

Where are we and where are we going?

So what does this tell us about the state of affairs in the U.S. mobile services market?  Quite a bit.

The fact of the matter is that in the last year T-Mobile, along with being a thorn in the side of the competition has also been helpful. With the U.S. market becoming saturated, the desirability on the part of the service providers to put an end to the subsidization of devices has been intense, and T-Mobile is responsible for setting in motion the ultimate elimination of this drag on profits.

At a higher level, what all of the competitive back and forth is validating a couple of industry realities.

First, is the fact that the current industry business model as Legere stated is in fact, broken. The subsidization model needs to be ditched, and that the market is absolutely saturated.

Second, is what should be recognition that there is only so much discretionary income that consumers are willing to pay for mobile services. Plans need to be modified to accommodate this. Getting rid of contracts, another T-Mobile pushing of the envelope, and the role of Wi-Fi integration and availability have and will play and important role here. As we all go to having a larger and larger cache of personal devices, for us personally and our family members, getting this right will be crucial.

Third, is that like it or not, consumers are in the driver’s seat. They want competition/choice. This was why in his first public moves, new Federal Communications Chairman Tom Wheeler zeroed in on the phone unlocking issue.  We know our zone of reasonableness on how much we can allocate to mobile services and to the victors will go the spoils. 

On this point, the churn numbers are going to be closely watched by Wall Street who is busy digesting all of the latest initiatives. Profit levels on data plans have been soaring in recent years, however, an increase in competition and the expense of dealing with not just churn but the outer limits of what all of us will be willing to pay is likely going to have significant impact on margins.

The good news for consumers is that T-Mobile, for as long as it can remain a “problem,” is in effect giving us the choices we crave when looking at our budgets. It would be nice to say that T-Mobile is doing this in the name of consumers, but alas this is as always about making money.  We happen to be collateral beneficiaries.

As I noted in my tech predictions for 2014 column a few days ago, the year ahead is going to be a watershed one in multiple markets. It already is shaping up as a tumultuous one in U.S. mobile and promises to get only more interesting. 

Let the games continue!

    




Edited by Stefania Viscusi
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