Quick Thoughts: T-Mobile’s Uncarrier 7.0 Takes Aim at VZ/T’s Profits

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–        TMUS’ “Uncarrier” strategy is working with 2.75M gross sub ads including 1M post paid ads in August alone and porting ratios from other carriers at over 2 to 1

–        CEO John Legere unveiled a new strategy to leverage WiFi connections to bolster quality of service and offer WiFi calling and texting globally – a strategy diametrically opposed to the rest of the US Telecom industry that will improve its coverage with little cost

–        Other announcements from Uncarrier 7.0 include a couple of freebies: TMUS will give away personal cell spots to subs for their homes and will offer unlimited texting / visual voicemail on domestic flights via a partnership with GoGo

–        TMUS has been keeping the pressure on the industry, demonstrating innovation and attacking from unexpected angles – T/VZ may not have the strategy and org model to respond

Taking the stage after downing a can of Red Bull and dropping F-bombs has become a staple of TMUS CEO John Legere’s Uncarrier keynotes. This afternoon was no exception as Legere and his lieutenants announced another set of broadsides aimed at destroying the T/VZ duopoly just three months after the last Uncarrier initiative.  In his latest salvo against wireless incumbents, Legere has essentially turned T-Mobile into the first major US mobile virtual network operator by allowing subscribers to use WiFi connections for calling and texting, something rivals have been loath to do given rich margins from cellular data services. The announcement is timely, coming just a day after Apple touted its new iPhone’s ability to seamlessly handoff between cellular and WiFi networks. While rivals have responded in kind by matching TMUS offers and tactics in the past, going WiFi could be very disruptive to the most lucrative source of profit for incumbents.

Legere’s previous Uncarrier moves included getting rid of contracts and subsidies in favor of simpler pricing, enabling more frequent upgrades with “Jump,” adding free international text and data roaming, allowing free week long trials of T-Mobile services, and giving users free music streaming over the TMUS LTE network. Though competitors have tried to match most of the TMUS initiatives, Legere revealed the company gained 2.75 million new subs in the uneventful month of August alone, including 1 million coveted post paids. These are extraordinary numbers for a company that just cracked the 50 million sub mark last quarter. It’s also a staggering add rate before a major product release like iPhone. Porting ratios of customers switching to T-Mobile are in its favor by more than a 2 to 1 ratio, with Sprint bleeding the most subs to TMUS at a 4 to 1 ratio. Legere of course also took swipes at new Sprint CEO Marcelo Claure and the quality of his network, but admitted when he took over as TMUS CEO, the quality of the network was where Sprint is today.

Far from being done with disrupting the industry, Legere noted T/VZ has 70% market share, 85% of the margins, and 75% of sub 1GB spectrum, which has been an issue for the secondary carriers for years. While CTO Neville Ray walked through the status of the TMUS LTE network upgrade, reiterating claims that TMUS has the fastest LTE network, there are still places that can’t be reached by carriers notably in the home with some 57% of wireless customers reporting dead zones in the home. TMUS itself doesn’t have nearly the same coverage or spectrum as its duopolistic rivals. With Uncarrier 7.0, TMUS effectively has made every WiFi connection function as a wireless tower effectively broadening and deepening the reach of the network. Going WiFi to provide cellular service has been a strategy of secondary carriers abroad for several years to deliver high service levels at a low cost. France’s Iliad, which made a bid for TMUS last month, also relies on WiFi connections to power its mobile network. With handset makers like Apple supporting technologies that enable reliable and seamless cellular-WiFi handoffs, the announcement (along with the TMUS name drop during yesterday’s Apple keynote) is a massive boost to the quality of the TMUS network.

If opening up the mobile network to WiFi wasn’t enough, Legere is also going to give away personal cellspots, subject to a $25 deposit, that are optimized for TMUS and feature the latest 802.11ac standards. These devices could quickly and inexpensively add coverage to dead zones in metropolitan areas and broaden coverage to include some rural areas. It is an innovative and inexpensive way to compete with the big guys who spent years and billions of dollars tailoring their networks for maximizing coverage.  Finally, TMUS also entered into an agreement to offer free texting and visual voicemail on US domestic flights featuring GoGo internet service, an added freebie that would most certainly appeal to higher income business travelers – a demographic that has generally opted for T/VZ services.

The “Uncarrier” strategy is working, reflected in the reported data from TMUS as well as the competitive responses over the past several months. With TMUS’ lower pricing and increased focus on service quality, the scrappy number four player is betting its brand and announced features will grab enough customers from other networks, particularly in the midst of a massive iPhone upgrade cycle, for it to overtake Sprint in total subs. Still, the ultimate goal for Legere is not 3rd place – his sights are on VZ and T, which have become vulnerable to disruption with their rich margins and stretched CAPEX cycles. With TMUS attacking from unexpected angles, it’s not clear either VZ or T has the strategy or organizational model needed to respond.

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

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