T-Mobile (NASDAQ:TMUS) ushered in the resurgence of unlimited wireless data plans last year. It took a few months, but Verizon (NYSE:VZ) and AT&T (NYSE:T) eventually jumped on board with their own unlimited plans earlier this year. (AT&T technically already had an unlimited plan, but it was only for DirecTV customers.)
There's a reason AT&T and Verizon may have been hesitant to launch unlimited data plans for their customers. They both have a lot more subscribers than T-Mobile, so unlimited data would put a lot more traffic on their networks compared to the smaller carrier. That means more congestion and slower download speeds for their customers.
On T-Mobile's first-quarter earnings call, CEO John Legere said that's already happening on Verizon's network just a few weeks after launching its unlimited plan.
A 14% decline in speeds
Verizon was the biggest holdout for unlimited data plans. It even said it didn't feel the need to release an unlimited plan just a few weeks before it eventually did just that. Legere asserts Verizon's hesitation was due to its network not being able to handle the load of unlimited.
"An interesting thing has happened since Verizon announced Unlimited," Legere said during T-Mobile's first-quarter earnings call. "Verizon's network has slowed down 14%, and they are now slower on the 4G LTE side than AT&T." Meanwhile, T-Mobile's network speeds increased 10%, according to Legere.
That's a much bigger shot at Verizon than it may sound to some. Verizon's competitive advantage stems from the quality of its network. It's central to the company's marketing campaign, specifically around its unlimited plan. If the network speeds are deteriorating, as Legere suggests, that could be a big problem for Verizon.
Not buying spectrum
What makes the assertion more interesting is Verizon's decision to sit out the recent FCC spectrum auction. T-Mobile was a big buyer, snatching up $8 billion worth of spectrum with a nationwide footprint. T-Mobile says it now has triple the low-band spectrum per subscriber as Verizon.
To be sure, network speed is typically the result of a more dense network. Closer cell sites reduce the amount of time it takes for a carrier to transfer data to a device. Verizon is currently focused on building out small cells throughout its network to support higher speeds and better reliability. To its credit, T-Mobile is doing the same thing.
Verizon's spectrum position provides a challenge for the company to maintain its network quality in the face of unlimited plans. It could pursue partnership opportunities, mergers, or acquisitions in an effort to improve its spectrum holdings. That avenue would allow it to get ahold of more spectrum with less of a cash outlay (i.e., it could use equity) than if it bought at the FCC auction.
T-Mobile is gunning for Verizon
Underscoring Legere's comments is T-Mobile's continued improvement of its network coverage and speeds. Earlier this year, T-Mobile tied Verizon for best overall speed in OpenSignal's State of Mobile Networks survey. It still lagged behind in coverage, but management expects its new 600 MHz spectrum holdings to help remedy that in the near future.
T-Mobile isn't as favored by RootMetrics, which ranked its network last in overall quality among the four major carriers last year. It notably saw a meaningful gap in network speed between Verizon and T-Mobile.
Nonetheless, T-Mobile's network appears to be improving at a faster pace than Verizon's. T-Mobile is also adding a ton of new customers every quarter, so it needs to keep improving. As T-Mobile expands its coverage, it could open up a whole new set of potential customers for it to steal away from Verizon. And it could have knocked Verizon's claim of having the best nationwide network down a peg or two by the time it gets there.