For T-Mobile (NASDAQ:TMUS) investors, you can't ignore the record of success from current CEO John Legere. After a failed $39 billion takeover attempt from AT&T was abandoned in December 2011, then-CEO Phillip Humm went into a survival strategy with a focus on job cuts and restructuring. After Humm suddenly resigned, and after a short stint with then-COO Jim Alling filling both roles, Legere was named to the position.
Legere, who conducts himself as a constant outsider, shrewdly realized his company couldn't compete well against the entrenched oligopoly of AT&T, Verizon, and Sprint as is, so he redefined the relationship with potential subscribers with his Un-carrier philosophy. By modifying the pain points that most wireless contracts contain -- most notably the two-year lock-in, overages, and unpredictable billing -- the company has grown subscribers quickly and recently overtook Sprint as the No. 3 wireless provider.
As a way to further differentiate beyond AT&T and Verizon, which have stopped offering new unlimited-data plans, T-Mobile offers an unlimited-data option for users -- just not as "unlimited" as a few users think the service is.
Legere: "I won't let a few thieves ruin things for anyone else."
In a strongly worded blog post, not uncommon for Legere, he takes aim at those who are abusing the unlimited-data policy. The issue Legere posits deals with tethering -- using the wireless "hotspot" feature that allows T-Mobile's network to power computers or other Internet-capable devices. Although the 4G LTE plan is unlimited, the unlimited data applies only to the phone itself, and the tethering function is limited to 7GB of super-fast 4G LTE data monthly. After the 7GB is exhausted, tethering plans should considerably slow.
However, according to Legere, here's where the thievery comes into play. Per website The Verge, there are a host of apps to hide the fact that the data is being used for tethering, allowing users to use T-Mobile's unlimited-data plans as the sole source of Internet connectivity for their desktops and other connected devices. In T-Mobile's support site, the company mentions data usage among some abusers as high as 2 terabytes (the equivalent of roughly 34,000 hours of music) in a month.
As for the offenders, it appears T-Mobile will warn them and then take their unlimited 4G LTE data plan and replace it with the entry-level limited offering. Of course, with T-Mobile's no-contract policy, these users will be free to move to a competing carrier anytime.
This will not lead to mass defections
For T-Mobile, this practice does not appear to be widespread, nor should it result in a mass defection for the company. Legere notes that only a hundredth of a percent of T-Mobile's 59 million customers -- about 6,000 users -- are hacking the system. Even if the abusers decide to leave the company, it isn't as if they have anywhere to go, since of the other the major providers, only Sprint offers unlimited data, and it asks for $10 per month for 1GB of tethering, versus the 7GB T-Mobile gives for free.
Unlike Verizon and AT&T's throttling policies that drew the ire of the Federal Communications Commission and Federal Trade Commission, T-Mobile's move shouldn't attract any attention. For starters, this is an existing policy (and a very generous tethering policy at that), and these abusers are clearly manipulating their data usage to the detriment of all subscribers. Frankly, I applaud Legere's approach on this issue, as it represents a commitment to T-Mobile's entire subscriber base.
Jamal Carnette owns shares of AT&T; and Sprint. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.