Millions of AT&T (NYSE:T) customers may find themselves without a network to support their devices by Jan. 1. AT&T recently announced that it's shutting down its 2G network by the end of the year, leaving millions of Internet of Things (IoT) devices in need of potential upgrades.
As of two years ago, AT&T had 17 million machine-to-machine connections (think car-insurance dongles for tracking driving habits or package tracking from a shipping company that automatically sends you texts or emails) across 2G, 3G, and 4G networks. At the time, AT&T's executive director of M2M product management, Mobeen Kahn, said "a large number of those are on 2G." It's since taken steps to migrate those 2G users to its 3G and 4G networks, successfully switching over 6 million, but millions still remain.
T-Mobile (NASDAQ:TMUS) sees AT&T's decision to sunset its 2G network as a big opportunity to take a large share of the relatively nascent Internet of Things market. Last month, T-Mobile began offering AT&T IoT customers free SIM cards for their devices (to facilitate the switch to T-Mobile) and free 50 MB per device per month (a substantial amount for most IoT devices) through the end of the year. T-Mobile has pledged to support its own nationwide 2G network through 2020.
At a recent Deutsche Bank conference, T-Mobile CFO Braxton Carter and CTO Neville Ray went over how the company plans to support its 2G IoT network through 2020.
The reason AT&T is shutting down its 2G network, which primarily supports Internet of Things devices, is because it needs to free up the wireless spectrum used by the legacy network. It plans to redeploy that spectrum to support its newest generation LTE network, lowering the amount of congestion that could potentially slow down data speeds for higher-value smartphone customers. That process is called refarming.
T-Mobile is currently refarming spectrum from its 3G networks -- both T-Mobile and MetroPCS -- to redeploy. At the Deutsche Bank conference, Carter said, "we have roughly 60% of our spectrum right now on LTE," adding, "we have a path to efficiently and effectively refarm the remaining spectrum."
But 5% of T-Mobile's spectrum will remain dedicated to its older network technology. "We are committed to keeping a very thin layer of legacy GSM out there for our M2M," Carter told the audience. (M2M stands for machine-to-machine communication, also known as Internet of Things. GSM refers to 2G.)
T-Mobile can afford to leave 5% of its spectrum dedicated to 2G for two reasons. First, it has more spectrum per subscriber than AT&T. Earlier this year, Carter said T-Mobile has about 14% more spectrum per subscriber than AT&T. After leaving 5% of its total spectrum for IoT customers, T-Mobile would still have more capacity per 4G subscriber than AT&T.
Perhaps more importantly, T-Mobile is quickly moving its customers to VoLTE -- voice over LTE -- meaning T-Mobile is moving voice calls from its old network to its LTE network, opening more spectrum for refarming. "We lead the industry in VoLTE," Carter said at the Deutsche Bank conference, "which is really important because until you get voice and data on 4G you can't refarm spectrum." In other words, T-Mobile has more of its 3G network spectrum that it can refarm before it would have to tap into its older 2G network.
The importance of IoT
AT&T is the leader in IoT connections. The wireless provider has about 29 million connected devices, the vast majority of which fall under its business solutions segment. Those connected devices include things like connected cars in addition to enterprise-specific machine-to-machine communication applications.
While AT&T is working to upgrade many of its 2G customers to 3G or 4G connections, the costs necessary to make some devices compatible with the modern networks is unreasonable for many and many IoT devices don't need a connection faster than what 2G can provide. That means AT&T will soon lose millions of connections. While they're relatively lower-value connections, it's relied heavily on connected devices to boost its net additions numbers over the last few years.
AT&T has relied on its connected device additions to offset the decline it's seeing in postpaid phone subscribers. T-Mobile CEO John Legere wasn't afraid to point that out last year when he made a blog post noting AT&T "thinks they can mask their flailing consumer wireless business with lots of cars and other low-value IOT connections." He also noted in that blog post that T-Mobile will be ready to disrupt the market "when we see these markets get ready for prime time."
The number of IoT connections is expected to triple from 2014 to 2020. The amount businesses spend on IoT-related services will more than double in that time, making it a billion-dollar industry. With T-Mobile's plans to support its 2G network through 2020, it looks like it's planning to capture a significant portion of that massive market growth at AT&T's expense.