T-Mobile’s self-defeating resurgence

By Felix Salmon
December 15, 2013

It’s a standard part of flying, these days: the minute you touch down, you pull out your phone and get back up to speed with the world — especially if you’ve been on a long flight without wifi. And then there’s the standard exception: when you’re flying internationally, you don’t. Not unless you’re very rich, or very reckless, or someone else is paying your phone bill.

Which is what made my arrival in Auckland this morning so special: I touched down after a long flight, pulled out my phone, cycled through Twitter and email and Foursquare, and didn’t stress at all about being charged $20.48 per megabyte (or whatever) in a world where I have no idea how many megabytes are involved in any of those activities.

But I just switched to T-Mobile, which has free international data. I’ve been using it for about 12 hours now, in Auckland and Wellington, and it’s been fantastic. I’d heard complaints about how slow it was, and I haven’t been trying to stream video, or anything like that, but basic things like maps and Google searches work fine.

I was already a fan of T-Mobile in any case: its LTE network is blazingly fast, its pricing is astonishingly simple and transparent, I’ve had very few dropped calls, and, the one time I did have a serious issue which required non-trivial customer service, their T-Force social customer support team came through with flying colors. It’s a big company, and there are still rough patches. But the “uncarrier” campaign is more than just a slogan, and makes it much easier to give T-Mobile the benefit of the doubt when things go wrong.

All of which explains why I got a horrible sinking feeling in my stomach when I saw the news that Sprint is working on a bid for T-Mobile. The first thing I thought of, when I saw the headline, was the documentary “Who Killed the Electric Car?“, about the General Motors EV1 of the mid-1990s. Electric cars could have had their start back then; instead, we had to wait almost 20 years. When you’re developing a new product which is a serious threat to the biggest players in the market, it makes sense for those players to shut you down.

The resurgence of T-Mobile was in no sense a predictable thing. Suffering from neglect and underinvestment, it agreed to be bought by AT&T in March 2011 for $39 billion. But when that deal got scuppered by the Justice Department, T-Mobile took its $4 billion break-up fee and started shaking up the industry in a very welcome and unexpected manner.

If Sprint does buy T-Mobile, it certainly won’t be because the two companies are any kind of natural fit. As Sascha Segan explains, there are a lot of reasons not to do this deal, including the fact that the combination of the two is a “technological nightmare”:

Sprint works with CDMA, some FD-LTE and increasingly TD-LTE. T-Mobile works with GSM, HSPA+ and FD-LTE. Sprint is trying to aggregate the 800, 1900, and 2600 bands; T-Mobile has some 1900, but does a lot of its work on 1700. This merger would result in a horrible technology alphabet soup; there’s very little compatible here, which means lots of time and energy will have to be wasted aligning these networks somehow. That means a combined Sprint/T-Mobile will fall even farther behind AT&T and Verizon.

That said, it’s easy to see why Softbank, Sprint’s new owner, would want to buy and neutralize T-Mobile. Softbank does have deep pockets. What it doesn’t have is any desire to get involved in the telecommunications equivalent of a land war in Asia, attacking two huge entrenched incumbents while needing to expend extra energy fighting off a nimble smaller competitor at the same time.

In other words, this bid, if it ever materializes, is an anti-trust no-brainer — and the T-Mobile board could be forgiven for regretting that they ever hired John Legere in the first place. Ironically, a weak and feeble T-Mobile might actually be worth substantially more than a seriously competitive T-Mobile, since the latter will have a much harder time passing anti-trust scrutiny.

Still, the die has been cast, at this point, and T-Mobile is on a roll. There’s something very refreshing about actually paying full price for the phone you use, either up front or on an installment plan, instead of signing up for an overpriced two-year contract and kidding yourself that you’re getting the phone for “free” or cheap. Segan calls T-Mobile’s Equipment Installment Plan its “one true innovation”, because it manages to “bridge the perception gap between the subsidized world and the no-contract world” — if you’re on the plan, you still end up paying less per month than you would on Verizon or AT&T, even with the extra cost of (say) an iPhone 5s added on a separate line item.

True innovations are rare in industry, and the US consumer has undoubtedly benefitted from this one. It’s just a little bit depressing that T-Mobile might have ended up being worth more if it had simply withered slowly away instead.

12 comments

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I, too, would hate to see T-Mo get bought by any other carrier, but I don’t see this deal happening. Sprint doesn’t have the cash to pay for it, and they couldn’t service the debt they would take on to finance a cash deal, so they would have to trade their shares for T-Mobile shares. Since DT still owns a big piece of T-Mo, they would be trading shares in a resurgent T-Mo for shares in a risky new venture fronted by a sideways Sprint. With incompatible networks and phones. I can’t believe DT would be that foolish. It took years for their investment in T-Mo pay off, they would have to be complete fools to dilute their holdings by combining it with Sprint.

Sprint needs to continue its effort to transition their network to all LTE, and to focus on competing with ATT and VZ, not T-Mo. They will lose any straight-up comparison with T-Mo, but if they adopt more of T-Mo’s tactics, they can take share away from ATT and VZ. They must unbundle their phones and service just as T-Mo has, and highlight the cost differences with the two larger incumbents. Maybe at some point, they will have a better network than ATT and VZ, but today they don’t, and until then, they need a business model that is more customer-friendly, and not one that mimics their larger competitors. Hopefully the leak was a trial balloon to see what the reaction would be, and they don’t proceed with it.

Posted by KenG_CA | Report as abusive

After moving away from Sprint 10 years ago, no way am I getting sucked back into their hell hole. I will switch if T-Mo gets bought out. Sprint is where good companies go to die.

Posted by GRRR | Report as abusive

I don’t know if this deal would be a net negative for consumers or not, but I think it’s a mistake to think that this is simply a case of Sprint trying to take out a disruptive competitor.

Sprint (and T-Mobile) simply don’t have the scale to compete effectively with AT&T and Verizon at this point. They need more spectrum, they need a more competitive cost structure, and they need broader networks. (Sprint has a history of making lousy technology decisions – PCS, etc. – so I wouldn’t read too much into that alone.)

Posted by worm600 | Report as abusive

Felix – You’re a little off with respect to AT&T’s break fee. The $3B in cash was not “taken” by T-Mobile – it went to Deutsche Telekom, which has historically underfunded T-Mobile). That being said, the $1B in spectrum (which did go to T-Mobile) had an estimated market value of $3B, so it did help the company avoid large capital investments.

Posted by ballmatthew | Report as abusive

Don’t care. Just bring back the T-Mobil girl!

Posted by OneOfTheSheep | Report as abusive

To me it looks like all the wireless carriers are undervalued at current prices. Even in a world where 90% of customers who will ever have a cell phone already have one you can still grow pricing at like 10% per year. It worked for cable where the average monthly bill is up 125% in the last 10 years. People can piss and moan all they want about being gouged but if you do the math it works out to about 3 cents/minute of usage. I can easily see a $150/month average smartphone bill by 2016… people will whine… but they will pay.

Posted by y2kurtus1 | Report as abusive

So you can see a family of four spending $600/month on cell phones? That’s nuts. Perhaps some can afford that, but half the country is already broke. Guess they’ll pay the cell phone bill and skip those life-saving meds that they can’t afford?

While .03 per minute doesn’t sound like much, it adds up over time. Call it $5/day and it becomes a substantial lifestyle choice. The cost you describe is approaching what we spend to feed our family.

Then again, I’m not the person to ask. I’d pay that much NOT to carry a cell phone. They prey continually on your mind, either through repeated interruptions or (if silenced) through wondering what you might have missed.

Posted by TFF | Report as abusive

y2k, I could see average smartphone bills of $150/mo, if ATT was allowed to buy T-Mo, but fortunately, that didn’t happen. You can actually get unlimited plans from T-Mo for $40/mo now, and I don’t expect that to increase. Unless Sprint buys T-Mo.

As for family plans, I actually have 3 smartphones and two voice-only phones on one plan with T-Mo, and it costs $165/mo. I could reduce it even more if I didn’t want unlimited 4G on one of the phones.

Cable TV has been able to increase their rates because they don’t have a competitor like ATT and VZ have in T-Mo. Also, some of their rate increases have come from the networks increasing their fees. And people are getting rid of cable, and relying more on the Internet.

The wireless carriers will ultimately face real competition from free, crowd-sourced mesh networks on unlicensed spectrum. They won’t have control over that, unless they preemptively lobby congress so the networks never get widely used. Given their lack of foresight, that’s not a given.

Posted by KenG_CA | Report as abusive

“Call it $5/day and it becomes a substantial lifestyle choice.” kind of like smoking you mean. I guess we’ll see which is more addictive. Kids these days aren’t clamoring to drive like they use to… now it’s all about getting that data plan… I suppose teen pregnancy will drop right?

“Cable TV has been able to increase their rates because they don’t have a competitor like ATT and VZ have in T-Mo.” What about dish and Direct TV? Not as similar as AT&T/VZ/Sprint/USCellular/TMobile I suppose but still it’s competition. The bottom line is that people now value digital connectivity more than transportation. Sounds crazy to people of my generation but people are voting with their wallets.

“The wireless carriers will ultimately face real competition from free, crowd-sourced mesh networks on unlicensed spectrum.” don’t hold your breath!

Posted by y2kurtus1 | Report as abusive

y2k, Dish and Direct don’t provide internet access, so they’re at a disadvantage to cable. Also, they don’t compete like T-Mo does, they compete more like ATT competes with VZ.

I didn’t mean to imply that mesh networks will be here soon. give it 5-7 years. In the meantime, there’s T-Mobile.

Posted by KenG_CA | Report as abusive

“I guess we’ll see which is more addictive.”

Guess so… Yet I suspect there are many families who cannot afford the $600/month price tag you are describing. If they do blow that much on cell phones, where do they cut back?

Posted by TFF | Report as abusive

I switched to T-Mobile for the new international coverage, and having just returned from So. America I can say it’s really a great advance. No more long “how to reach me” memos, easy access to email without camping out in hotel lobbies, and $0.20 calls back home. Speed was adequate for all but video. Let’s hope this is the start of an industry wide trend.

Posted by 78RL | Report as abusive