How T-Mobile Plans to Attack AT&T and Verizon

Howard Stern and T-Mobile  (NYSE: TMUS  ) CEO John Legere may operate in completely different businesses, but the phone company boss has learned a lesson from the radio shock jock.

No T-Mobile hasn't started spanking strippers or having its staff make phony calls. Instead the company -- through its CEO -- is taking shots at its bigger rivals. Stern -- when he was a much lesser-known personality working in local markets -- did exactly the same thing. The man now known to his fans as the "King of All Media" would identify the top DJs in the market he was entering and ruthlessly attack them on the air.  

Either the competitors themselves or the local media would pick up on the taunting and turn a one-sided fight into an actual war. Stern would immediately be elevated to contender status simply by being linked to the current leader as a competitor. Legere is doing exactly the same thing as he seeks to make T-Mobile a player in a field dominated by AT&T (NYSE: T  ) , Verizon (NYSE: VZ  ) , and Sprint (NYSE: S  ) .

T-Mobile CEO gets aggressive

Legere took a shot at his competitors on March 7 in a press release announcing a pricing change for T-Mobile.

"In the mobile age, wireless data caps and overage fees are just this side of extortion," said Legere. "Take the basic plans from the Big Two with ridiculously low data limits that hit you with fat overages each month. It's like getting your data from the neighborhood loan shark and paying 100% interest when the bill comes due. It's the classic shakedown."

It's not the first time Legere has taken a shot at his rivals. By going after his competitors and not just offering an alternative but mocking the status quo, Legere is getting the media to pay attention. 

When Stern did that it inevitably ended in a funeral -- a live radio show where the controversial host mock-buried his competitor when Stern became number one in the market. Whether T-Mobile has any funerals in its future for competitors remains to be seen, but Legere certainly has made it feel like his team is in the game.

Where the cell phone industry stands

In the United States Verizon has about 31% market share, AT&T has about 27%, while Sprint and T-Mobile each have around 11%, according to Gary Kim, writing at Techzone360.com. The major challenge facing any carrier hoping to steal market share from the big two is that despite the many commercials attempting to get them to do so -- customers don't switch providers very often.

Parks Associates consumer data show that almost 50% of U.S. mobile phone service customers did not change providers over the last 10 years. "Fully half of the customer base virtually never changes providers, meaning that all switching behavior is concentrated on just half the total subscriber base," the research company reported .

Only 13% of subscribers switched three times or more in the last 10 years. 

"The real battle to shift consumer allegiance would be fought over about 13% of customers, disproportionately concentrated among prepaid accounts," the Parks Associates report said.

It's certainly possible T-Mobile can lure people who rarely switch, but it's less likely. That makes making an assault on the big two a daunting task that may benefit from Legere's big talk. 

Sprint may change the game

Sprint also wants to take on the big two, and one of its strategies is to buy T-Mobile. That merger is far from certain as T-Mobile may fight the move and federal regulators will look at it closely. Though the combined companies would still service fewer mobile subscribers than AT&T and Verizon, the FCC has been against the idea of more consolidation in the space, Geekwire reported. 

The Justice Department and the FCC have said, according to Geekwire, that they're happy with the number of players in the wireless market and don't really want to see it shrink from four to three major carriers.

"It is arguable that the industry has in fact become more competitive for the industry's top two companies, as #3 and #4 players Sprint and T-Mobile have strengthened their competing nationwide networks with ongoing buildouts and spectrum acquisitions (i.e., T-Mobile's acquisition of MetroPCS and Sprint's acquisition of Clearwire)," Goldman analysts told Geekwire. "This has enabled them to be more competitive vs. Verizon and AT&T in key urban markets than previously, a dynamic that could continue to keep a lid on industry margins near term despite a very high level of consolidation."

A Sprint/T-Mobile merger or acquisition may not change the aggressive nature of T-Mobile's attempt to compete, as Sprint Chairman Masayoshi Son has not exactly been kind in his description of the big two.

"Every time I make a business trip to the U.S., I am reminded how terrible connections are there," Son told the Wall Street Journal. "The U.S. has one of the world's highest mobile fees."

T-Mobile is on the right track

T-Mobile added more than 1.6 million customers in the fourth quarter of 2013 and a total of 4.4 million for the year. Sprint only added 682,000 new subscribers in the fourth quarter  and lost subscribers in two of the three previous quarters (finishing the year up slightly).

With its bold CEO who talks tough and commercials that clearly take aim at the big boys, T-Mobile has found a winning strategy to claw its way forward in the increasingly competitive mobile space. By acting like he deserves a seat at the grownups' table, Legere has baited his competitors to lower prices, change plans, and generally acknowledge T-Mobile as a player. 

That may not lead to a Legere movie, a book deal, or a funeral for AT&T or Verizon, but it should keep T-Mobile growing.

The smartphone war's best-kept secret

Want to get in on the smartphone phenomenon? Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."


Read/Post Comments (7) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 11, 2014, at 4:26 PM, golf4aliving wrote:

    Mr.Masayoshi Son...Needs put down his Sprint phone and use the Verizon network...Although, I totally agree, the Sprint network is arguably a very painful choice. Suspect that Mr. Son has also learned his latest purchase has many faulty parts which will require many billions and many years!

    Good luck Mr. Son.

  • Report this Comment On March 11, 2014, at 5:38 PM, Frankxr wrote:

    T-Mobile is in a good position. The government was right not to permit ATT acquisition. The government should also continue to prevent consolidation. The truth is that the carriers all need to work on their cost structure. T-Mobile can grow organically by taking market share from other players. How? By reducing switch barriers, lowering prices and driving awareness of their network investments. They can then focus on service to keep churn to a minimum. They maintain margin by reducing costs in the infrastructure and automation. The added growth will allow them to maintain salaries if they keep staff lean.

    However, this strategy will only last several years at most- then plateau. To enhance growth and reduce churn all carriers need to get good at the deployment of value added services. That’s not something any carrier has been good at to date. The vacuum of their lack of innovation has resulted in a plethora of over the top (OTT) services. While this stimulates demand the lion’s share of the value does not accrue to the shareholders of the carriers. All carriers need to start investing in brain capital from the IT software sectors to subsume this value. No Carrier can remain content with a cost mitigation strategy. At some point Carriers need to start to add top line value. Also, the only way Sprint and ATT and Verizon will be able to counter the efforts of T-Mobile is to also start to build/buy and package a new suite of services. These can be enhanced through integration with a smarter network. Otherwise any one Carrier will only grow at the other’s expense.

    By preventing carrier consolidations the government will stimulate innovation. Necessity is indeed the mother of invention. The Carriers need to understand that cost cutting via consolidation (by firing a bunch of workers and streaming IT and operations) is not the right solution. There is no easy out and shareholders should not reward management whose only value is their ability to cut costs. If Carriers want to be a success they need to start creating real value through innovation across products and programs to leverage their platforms.

    No company ever became truly great based on cutting costs. You become great though great must have products and services people are willing to pay for. If you love mobile and telecom like I do hit my up on Linkedin. I am Frank Ramirez New Products Marketing Leader/ Consultant in Seattle.

    I was the 1st Director of Smartphones at T-Mobile. My team introduced flat rate unlimited wireless data and WiFi - here is my point of view.

    The government was right not to permit ATT acquisition. The government should also continue to prevent consolidation. Here is why .

    T-Mobile is in a no lose position - for now. T-Mobile can grow organically by taking market share from other players. How? By reducing switch barriers, lowering prices and driving awareness of their network investments. They can then focus on service to keep churn to a minimum. They maintain margin by reducing costs in the infrastructure and automation. The added growth will allow them to maintain salaries if they keep staff lean. This will build team moral and a culture of confidence.

    However, T-Mobile needs to be wary. This strategy will only last several years at most- then plateau. To enhance growth and reduce churn all carriers need to get good at the deployment of value added services. That’s not something any carrier has been good at to date. The vacuum of their lack of innovation has resulted in a plethora of over the top (OTT) services. While this stimulates demand the lion’s share of the value does not accrue to the shareholders of the carriers. All carriers need to start investing in brain capital from the IT software sectors to subsume this value. No Carrier can remain content with a cost mitigation strategy. At some point Carriers need to start to add top line value and take revenue from other industries – just like Google is doing now. They need to use their technology and infrastructure and use it as a lever to transform other industries in a manner that creates shareholder value. Also, the only way Sprint and ATT and Verizon will be able to counter the efforts of T-Mobile is to also start to build/buy and package a new suite of services. Carriers can enhance their offerings and differentiate them through integration with their smarter network. Without innovation any one Carrier will only grow at the other’s expense. Carriers should take a long hard look at the fortunes of Compaq, Dell, HP, Gateway and the lifecycle on that industry. There are many lessons that can be learned. Then look to Amazon and Google for inspiration.

    By preventing carrier consolidations the government will stimulate innovation. Necessity is indeed the mother of invention. The Carriers need to understand that cost cutting via consolidation (by firing a bunch of workers and streaming IT and operations) is not the right solution. There is no easy out and shareholders should not reward management whose only value is their ability to cut costs. If Carriers want to be a success they need to start creating real value through innovation across products and programs to leverage their platforms.

    No company ever became truly great based on cutting costs. You become great though great must have products and services people are willing to pay for. If you love mobile and telecom like I do hit my up on Linkedin. I am Frank Ramirez New Products Marketing Leader/ Consultant in Seattle.

  • Report this Comment On March 11, 2014, at 5:41 PM, Frankxr wrote:

    what's with the double paste of my comment ?

  • Report this Comment On March 11, 2014, at 9:27 PM, DevilMadeMeDoIt wrote:

    T-Mobile might have a chance at any kind of war WITH sprint otherwise its a terminal cancer....

  • Report this Comment On March 11, 2014, at 9:28 PM, DevilMadeMeDoIt wrote:

    .........meaning teaming up with sprint

  • Report this Comment On March 12, 2014, at 6:12 PM, UnderOath wrote:

    T-Mobile is an absolute joke!

    we will pay your early termination fees lol

    you have to pay them off then wait months to be reimbursted.then the catch with paying off your early termination fees is BS you have to trade your phone in for that to work and most of us have decent phones which can be sold on amazon or ebay to make some decent pocket money for accessories for the new phones that we have to buy from T-Mobile provising you have great credit..all that for an inferior service with aweful customer service lol...you can keep that shiit!!!!

  • Report this Comment On March 13, 2014, at 1:03 AM, CrazyDocAl wrote:

    T-mob is a small time player that's going to stay small. What they needed to do was expand their network, what they did is use that money to buy customers from AT&T. T-mob's data network is a joke. A few big cities is about all they cover.

    All T-mob is going to do is help Verizon. As T-mob customers get fed up with the poor service they are going to look at who has the best network. As of now that's Verizon and with all the carriers cutting plans it's just going to limit everyone from expanding coverage.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2872259, ~/Articles/ArticleHandler.aspx, 10/21/2014 6:41:50 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement