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.

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