T-Mobile (NASDAQ:TMUS) won 45% of all the 600 MHz band spectrum up for auction in last year's incentive auction. The spectrum was once used as television airwaves, but the FCC is enabling wireless carriers to repurpose it for cellular service. T-Mobile is spending aggressively to clear that spectrum from its previous holders and deploy it for use in its wireless network.
T-Mobile is using its 600 MHz airwaves to improve its network bandwidth, increase indoor reception in big cities, expand its coverage to more rural markets, and it will also be the foundation of its 5G network over the next couple years.
There's one big hitch, though. Apple (NASDAQ:AAPL) iPhone owners on T-Mobile's network can't use the 600 MHz band. The radios in the iPhone don't support it.
But the newest batch of iPhones -- the iPhone XS, iPhone XS Max, and iPhone XR -- all support 600 MHz waves. That should give T-Mobile a reason to celebrate, but it has to get customers to upgrade their phones first.
How big of a deal is the iPhone to T-Mobile?
Apple is the dominant force in smartphones in the United States. Around 45% of American smartphone users have an iPhone.
That number could be lower at T-Mobile, as it was the last major carrier to offer the iPhone. Still, it's been over five years since T-Mobile started offering the iPhone, and T-Mobile has added a lot of new customers in that time. iPhone owners represent a significant portion of T-Mobile's subscribers, and they're currently locked out of using the most advanced piece of its network.
Moreover, customers switching from AT&T (NYSE:T) and Verizon (NYSE:VZ) are liable to have a suboptimal experience if they're using an old iPhone. Last month, T-Mobile started testing free 30-day trials of its network in three cities. That trial relied on a mobile hotspot. If customers actually switch, they might find they can't get the same coverage and speeds with their own devices.
The new iPhones, however, will provide the same coverage as those hotspot trials. And as T-Mobile builds out its coverage using the 600 MHz spectrum it acquired last year, getting 600 MHz-capable handsets into customers pockets will be key to proving to customers its network is, in fact, on par with the bigger competitors. Getting customers to upgrade to the newest batch of iPhones will be key.
Is T-Mobile doing enough to get customers to upgrade?
Considering the importance of getting 600 MHz-capable handsets into its customers hands, T-Mobile isn't being very aggressive with promotions for the iPhone XS and iPhone XS Max. It's offering a slightly higher trade-in credit for old iPhones. AT&T and Verizon are offering customers who buy two new iPhone XSes $700 in statement credits.
Following AT&T and Verizon's offers, T-Mobile has moved to match them. Still, it's promoting its trade-in offer above the $700 credit.
T-Mobile's conservativeness with the iPhone XS is surprising considering it offered a more aggressive promotion with the 600 MHz-capable Samsung Galaxy S9. Customers can buy one device and get a second free after statement credits (about $720 in value). That offer is still available.
When Apple released the iPhone 6s, which was the first to support another spectrum band integral to T-Mobile's network (700 MHz), T-Mobile offered several promotions enabling customers to pay as little as $5 per month to lease the new phone, and gave everyone the opportunity to simply buy the new phone for $125 off retail. The next year, it offered free iPhone 7's to customers trading in an iPhone 6 or newer.
But, over time, T-Mobile has become less aggressive with its iPhone promotions. Management noted that AT&T and Verizon have simply copied its promotions in the past, which negates the impact of the promotion and just costs everyone money.
In an industry experiencing record low customer switching, T-Mobile might increase customer's incentives to upgrade their handsets to the new iPhones and switch carriers. The new iPhones will allow customers to take full advantage of the network T-Mobile's built and continues to improve. Given the advantages T-Mobile could realize from its customers upgrading their iPhones, it's quite a surprise T-Mobile isn't being more aggressive with its iPhone promotion.