T-Mobile (NASDAQ:TMUS) CEO John Legere may get media attention for his antics on Twitter, but he turned his company around by boldly cutting prices, being honest with customers, and casting aside what had previously been the conventions of the mobile phone business. Now his counterpart at Sprint (NYSE:S) Marcelo Claure, is copying Legere's blueprint with similar success.
That may make Legere's stated goal of passing Sprint to become the No. 3 wireless carrier a harder proposition than previously imagined. In fact, though T-Mobile is still posting big subscriber gains, Sprint may have actually added more users in the last quarter. That could be bad news for Legere's ego, but in reality both companies are doing well, using lower prices to lure customers away from AT&T (NYSE:T) and Verizon (NYSE:VZ).
This may be a case where having two companies touting low prices, more data, and less billing nonsense makes the promise ring more true to customers. When it was just Legere shouting from the social media rooftops, it seemed like maybe there was a catch. Now that Claure has joined him (albeit in a more tasteful way) more people believe the deals are real with no strings attached.
Has Sprint caught up?
When Claure took over Sprint about three months ago, the company was a mess. It was bleeding subscribers and its marketing was built around the confusing and off-putting "Framily" plan that forced people to harass friends and relatives to join Sprint with them to get the best deals.
Since taking office on Aug. 11, Claure got rid of "Framily" and replaced it with clear pricing that is in line with T-Mobile's. He also made a deal with Apple that gave the company the right to offer its unique iPhone for Life plan, which offers unlimited data at a lower price than Sprint's existing contracted plan along with a new iPhone at no upfront cost. These moves have paid off and Consumer Intelligence Research Partners reports that Sprint may have actually had the largest net subscriber gains in the third quarter, GeekWire reported.
The numbers are a bit complicated because CIRP uses percentages rather than subscriber numbers. For the period Sprint added 43% new subscribers while losing 25% of its customers, for an overall gain of 18%. During the same period T-Mobile added 39% but lost 33% to other carriers, an overall addition of 6%. The data also showed that while Sprint and T-Mobile added more customers than AT&T and Verizon, both had more trouble holding on to them.
This suggests that while low prices are enticing, once customers get to Sprint and T-Mobile the rest of the package may not be so great.
Is the network the issue?
Claure and Legere have been successful in luring customers to their brands and both are having trouble holding on to them. The reason for this may be that Sprint and T-Mobile lag behind AT&T and Verizon when it comes to network quality.
My fellow Fool Chris Neiger wrote about this topic in September and shared a survey from RootMetrics which showed that for the first six months of the year Verizon has the best network with AT&T not far behind.
Sprint and T-Mobile consistently ranked third and fourth across not just overall performance as shown above, but all the categories tracked in the RootMetrics survey. These included reliability, speed, data performance, call performance, and text performance. The write-up of the results also makes it clear that this is not a case where everyone is doing well but someone had to come in last.
Though AT&T trailed Verizon, its performance was noticeably better than what we saw from Sprint and T-Mobile at the national level. ... If you are primarily a data user or if reliability is most important to you, it's worth noting that Sprint and T-Mobile markedly trailed the top two networks in our data category and our Network Reliability Index at the national level.
The only good news for Sprint and T-Mobile is that while they were consistently at the bottom, RootMetrics did acknowledge that they have started to close the gap.
It's still good news
If both Sprint and T-Mobile are growing, Legere may not achieve his goal of becoming the No. 3 wireless carrier, but that's completely irrelevant because AT&T and Verizon are the real "enemies" he should have his sights set on. T-Mobile showed that offering customers something different in the form of better prices and clear plans would work, Sprint further proved that model.
Now both companies need to continue to invest in their networks so people don't just come, they also stay. That's a tougher task than getting people excited about lower prices, but RootMetrics was willing to say "both networks are clearly improving -- especially in our overall, data, and reliability performance categories," so it seems like an attainable goal.