T-Mobile, failed mergers, bold moves, and the path ahead

You may not have realized it, but the mobile landscape in the United States has seen a titanic shift in the last decade. T-Mobile has come a long way from the also-ran of 10 years ago, so much so that it’s now pushing Verizon and AT&T to become the best carrier in the market today.

German-owned T-Mobile has overcome a spotty network, slow speeds, and a lack of flagship phones to remake its reputation. As of this publish date, it had just been announced that T-Mobile now has the second-best network in the country and the fastest LTE according to OpenSignal.

To fully appreciate where TMo is now, we have to take a look back to where it all started.

History I: The Beginning

The roots of T-Mobile were planted when the Western Wireless Company spun off a subsidiary known as VoiceStream Wireless PCS in 1994. VoiceStream continued on until 1999 when it was spun off completely from Western Wireless and then purchased in 2001 by the German company Deutsche Telekom AG for $35 billion. In July of 2001, VoiceStream Wireless PCS was re-branded T-Mobile.

In the years before its purchase, VoiceStream acquired several region carriers of its own. Among the companies acquired by VoiceStream were Omnipoint Corporation and Aerial Communications Inc which gave it footholds in the Northeastern United States and bigger markets like Columbus, Houston, Kansas City, Minneapolis, Pittsburg, Tampa, and Orlando.

The VoiceStream purchase was just the first of many for Deutsche Telekom. After purchasing VoiceStream in 2001, the German giant went on to purchase Powertel, a regional Southern carrier, and SunCom, which operated mainly in the Carolinas, Virgina, and Tennessee region.

These acquisitions, as well as upgrades to its existing network, turned T-Mobile from a regional carrier into a national provider in a few short years. While it still lagged far behind the big three of Sprint, Verizon, and AT&T, it was on the map.

History II: A Failed Merger

Though Deutsch Telekom had pumped billions of dollars into its carrier, it was still not sold on staying in the market. That, combined with the introduction of the iPhone on rival networks and a subsequent dive in subscriber numbers, led to DT accepting an offer of $39 billion from AT&T in 2011. The deal was subject to regulatory approval and luckily for customers, AT&T and T-Mobile were unable to push the deal through.

After the United States Department of Justice sued to block the deal and the FCC signaled that it would not support the merger, AT&T officially pulled its offer. Due to contract clauses, T-Mobile would be awarded a “break-up” fee of $3 billion in cash and spectrum valued at $1 billion. This infusion of cash and spectrum would lay the foundation for T-Mobile’s current-day success.

Metro Merger and The Uncarrier

While the failed merger with AT&T would help T-Mobile in the long run, two moves took it from also-ran to contender: merging with Metro PCS and turning into the Uncarrier.

Metro PCS was a key acquisition for T-Mobile due to the spectrum and financial resources that Metro held. T-Mobile was able to use these resources to build out its LTE network. One of the biggest factors holding T-Mobile back in the eyes of consumers was spotty reception, and now the Telecom could fix that.

If merging with Metro PCS was dumping gasoline on the fire, T-Mobile’s Uncarrier moves were jet fuel. Starting in 2013, T-Mobile made a series of consumer-friendly moves and rebranded itself the “Uncarrier” in an attempt to differentiate itself from Sprint, Verizon, and AT&T.

The first major move that T-Mobile made was doing away with two-year service contracts. Customers would now be able to purchase a phone from T-Mobile and instead of signing a contract for a reduced rate, T-Mobile would finance the phone to the customer at 0% over 24 months. More popular moves like paying for contract termination fees from other carriers, upgrading phones multiple times a year, roll-over data, and free data for certain streaming services were introduced over the next three years to, mostly, rave reviews.

It Starts At The Top

Any conversation of the radical redesign must include its brash CEO, John Legere. Legere was appointed CEO in 2012 after stints at AT&T, Dell, and Global Crossing, and has been credited with the Uncarrier revolution within T-Mobile. Never afraid to drop an f-bomb or give the middle finger to the rest of the industry, Legere has transformed T-Mobile’s image from a fourth-place carrier with a spotty network to the carrier on the consumer’s side with an expanding network and lightning quick speeds.

Isn’t it #NationalLazyDay every day for @Verizon & @ATT??

— John Legere (@JohnLegere) August 11, 2016

Legere’s brand of leadership does not come without controversy. As an active member of the Twitterverse, Legere interacts directly with customers and freely gives his opinions on what he see’s as pain-points and hypocrisies within the industry. During the controversy over T-Mobile’s Binge-On service and its Net Neutrality consequences, Legere gave a “curse filled (sic) hate rant against the EFF” according to Gizmodo.

But, Legere has been truly a force that has turned T-Mobile around. T-Mobile went from a churn rate (the annual percentage rate at which customers stop subscribing to a service or employees leave a job) of 3.2% to 1.3% (as of Q1 2016) and surpassed Sprint to become the nation’s third-largest carrier by customer count. In 2016, T-Mobile reported a profit of $479 million when a year before it lost $63 million. Legere’s plan certainly seems to be working.

Rate Plans and Unlimited Data for Everyone

When T-Mobile started its Uncarrier moves, one of the biggest motivators for customers to switch was the promise of low monthly rates for unlimited calling and texting (within the US) and unlimited data. The data comes with a catch as you are throttled to almost unusably slow 2G speeds once you hit your data allotment, but you’re technically getting unlimited data. If you’re coming from a carrier that charges huge data overages, that’s a major selling point and T-Mobile knows it.

The pricing structure has gone through several large changes since shuttering two-year contracts, but here’s what it breaks down to at the time of publication.

T-Mobile’s rates are competitive with everyone in the market. Mobile Virtual Network Operators (MVNO) can offer lower prices but rely on towers leased by the big four networks. This can lead to slower speeds and de-prioritization.

In addition to line access fees and the cost of upgraded data, customers will incur the cost of purchasing their phones. Unlike the old two-year contract system, T-Mobile allows you to finance your phone over two years at 0% interest.

The service is designed to benefit consumers by not locking them into long term contracts where they’re forced with tough decisions if they break their phone or want to upgrade it, but it has come under fire from those who say forcing customers into 24-month finance agreements is still a de facto contract. If you cancel your service while you still have a balance on your phone, it is due immediately and that can sometimes cost even more than contract termination fees in two-year contracts.

The bottom line with T-Mobile is that you will save money with its service, especially with family plans or if you bring your own unlocked GSM phone. Other carriers offer discounts and promotions that can save you even more (like Sprint’s 50% off deal), but T-Mobile will almost always come in under the prices for carriers like AT&T and Verizon.

Phones, phones, phones

If I were to tell you that one phone almost caused the collapse of T-Mobile, would you believe me?

When the Apple iPhone was the hottest new thing on the market, it drove customers to competing carriers in droves because they could not use the phone on T-Mobile’s network. The dedicated few were able to unlock some iPhones and use them on T-Mobile’s 2G network, but those instances were few and far between. It’s estimated that T-Mobile lost somewhere in the vicinity of 20% of its customers due to iPhone exclusivity.

Long gone are the days where T-Mobile customers were locked out of flagships just because of the network they chose. T-Mobile has all of the major, non-exclusive flagship phones to date with an impressive selection of budget and low-cost phones. Due to the large number of pre-paid customers, low-cost phones like the LG K10 which can be purchased for $165.

T-Mobile has also been receptive to consumers bringing their own unlocked phones to the service. With an expanding network, fast data speeds and consumer-friendly policies, it’s easy to see why many fans of unlocked phones like the Nexus line are T-Mobile customers.

The path ahead

T-Mobile has done a wonderful job playing the underdog. It’s come a very long way in a very short time considering all of the obstacles in its way. But, where does it go from here?

CEO John Legere has guided the company into a position where it’s either beating or neck-in-neck with Verizon and AT&T while Sprint lags badly behind. But, if you think T-Mobile is going to stop improving, you’re dead wrong. Legere has said he won’t stop until T-Mobile is the number one carrier in the country. And it’s getting close.

On the horizon, we have the 600 Mhz block auction where T-Mobile could scoop up even more spectrum to strengthen its network and a 5G rollout which will move speeds into the stratosphere. T-Mobile is competing on all fronts and has all the tools to push beyond its competition into a dominating position.

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