Quick Thoughts: John Legere and TMUS are at it again

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–          TMUS CEO John Legere continued his “Un-carrier” assault on T and VZ, unveiling 2 new and unique subscriber benefits in an F-bomb laden late night presentation.

–          The 1st offers a 7-day free test drive of the iPhone 5S, underwritten by Apple, which is providing the devices as a lever to grow its penetration on TMUS

–          “Music Freedom” lets subs listen to popular streaming music services without throttling or counting toward caps; a move sure to be a hit with younger demos

–          Un-carrier has driven big share gains for TMUS but not profits. Legere asserts that synergies from a deal with S would allow even more aggressive tactics.

Since taking over as TMUS CEO nearly two years ago, John Legere has become known for his aggressive provocation of the country’s largest wireless carriers, T and VZ. Wildly outspoken and not afraid to sprinkle his late night corporate announcements with profanity, he was at it again last night, debuting the latest changes to TMUS service, dubbed Un-Carrier 5.0 and 6.0. Legere is adamant about removing “pain points” for wireless subscribers – previous un-carrier initiatives did away with phone subsidies (1.0), announced an early upgrade program (2.0), added unlimited international data (3.0), and announced his company would pay for early termination fees from other carriers (4.0). The first new initiative (5.0) offers a 7-day free test drive with an iPhone 5S on T-Mobile’s network, with phone inventory underwritten by Apple. After the week is up, users can turn it back in without obligation or agree to buy it. The second initiative (6.0) gives T-Mobile’s subs unlimited streaming music from the most popular services without eating into data caps or suffering bandwidth throttling.

The iPhone test drive program serves the interests of both Apple and T-Mobile, which was the last US carrier to get the iconic smartphone. For Apple, the fast growing T-Mobile subscriber base is underpenetrated – Legere noted that only 2/3s of his customers are aware that the iPhone is even available on the network. Even though it will bear the cost of supplying the inventory of free phones, the program could juice demand during the soft period ahead of the expected fall launch of the iPhone 6. For T-Mobile, un-carrier 5.0 may help induce iPhone users on other carriers to churn after a low risk trial on its network. Ostensibly, the deal should be a win-win for both companies.

Un-carrier 6.0 follows in the wake of Apple’s controversial Beats acquisition and Amazon’s launch of its Prime music service – subsequently integrated into its just announced Fire Phone smartphone. Legere’s plan offers unlimited streaming from most of the top services, including Pandora, Rhapsody, iHeart Radio, iTunes Radio, Slacker, and Spotify, without effecting data caps or triggering bandwidth throttling. This addresses a serious pain point for younger wireless users who sign up for the cheaper limited data plan and then scavenge for WiFi connections to get their all-important music. The program is obviously beneficial to these users and to the services, which will get more engagement and thus, more opportunities to sell advertising and otherwise monetize their positions. For TMUS, the angle is to attract adolescents, teens, and young adults to sign onto TMUS instead of other carriers, driven by this high value use case for the demo. With the industry characterized by low single digit churn rates, the lifetime value of these young customers is massive and un-carrier 6.0 gives T-Mobile the upper hand.

Beyond the substance of these new announcements, last night’s program offered self-styled rock star CEO Legere an open forum to blast his rivals and he did not disappoint. In front of a screaming crowd of TMUS employees and journalists, it was business as usual, sticking it to the man. He opened with a jab at cross town e-commerce giant Amazon, which unveiled its Fire Phone earlier in the day as an exclusive with AT&T, after having spent time earlier in the day ripping the tie in on Twitter. He moved on to bash Verizon and AT&T for their emphasis on coverage maps as a distraction from what he views as inferior service quality. Legere claims TMUS has 70% more spectrum per sub than Verizon or AT&T, asserts that his network offers dramatically better data performance, and touted advancements rolling out wideband LTE as well as VoLTE. Oh yes, he also accused the market leading duopoly of “raping” their customers for “their very last penny”.

Legere avoided speaking about the potential for a merger with Sprint from the Paramount stage, but later spoke more frankly to GeekWire, saying:

“I know what we’ve done in the last year-and-a-half is a small inkling of what real competition is like. In order to keep it going, there’s things we need in the long term — scale, spectrum, etc. And one way to get those is consolidation.”

Legere, who is expected to get the top spot in a combined Sprint/T-Mobile, seems to be sending a message to Washington that he intends to keep up the pressure on the industry, and that with the added scale after a merger, he could rock competition even harder. Of course, the “Music Freedom” initiative smacks of the “internet fast lanes” that have become the bête noir for net neutrality proponents, but as long as T-Mobile keeps the fast lane open to all comers and doesn’t charge them for it, I don’t expect much challenge to the program.

All in all, last night’s announcements are savvy marketing programs that shouldn’t cost T-Mobile much to implement, unlike some of the previous un-carrier initiatives, such as paying early termination fees or offering free international data roaming. I expect that the scrappy carrier will pick up some share from curious iPhone diehards and consolidate its leadership with the youngest demographic segments. This is all good for T-Mobile and bad for its competition.

For our full research notes, please visit our published research site.

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