T-Mobile USA seeks differentiation

T-Mobile’s recently-announced “un-carrier” strategy is bold and long-overdue attempt to revive its fortunes by clearly differentiating itself from other major US mobile operators on the four key fronts of prices, services, devices and network:
 
Prices: In the most aggressive part of its new strategy, T-Mobile is significantly undercutting its rivals on price. With the new plans, customers buying a Samsung Galaxy SIII smartphone and unlimited voice, text and data plan from T-Mobile would save $1,330 over two years compared with the closest package from Verizon Wireless and $510 over two years compared with Sprint.*
 
Services: T-Mobile has unveiled its Simple Choice Plan which ends device subsidies and annual contracts, and asks customers to make two choices – how much data and how many lines. While the operator is rightly stressing the simplicity and freedom of its new approach, it will also have to educate postpaid customers on the need to pay for devices as well as services.
 
Devices: T-Mobile will soon join the other top US operators in offering the LTE-enabled iPhone 5, which will eliminate another disadvantage that the operator has struggled to overcome for some time. The operator also announced other new LTE devices including the Samsung Galaxy S 4, BlackBerry Z10, T-Mobile Sonic 2.0 Mobile HotSpot LTE, Samsung Galaxy Note II and HTC One.
 
Network: T-Mobile finally launched its 4G LTE network today in seven cities and plans an aggressive rollout to cover 100 million people by mid-2013 and 200 million by end-2013, in a bid to overcome the disadvantage of being the last major US operator to launch LTE.
 
As the smallest of the US big four mobile operators, T-Mobile is finally making the type of bold moves necessary to shore up its competitive position and end the slow bleed of subscribers leaving for rival operators which has weighed on its results for years.
 
While launching LTE and the iPhone are a case of catching up with the competition, T-Mobile’s new Simple Choice Plan and aggressive prices will appeal to consumers and business alike, and should put the operator on the road to recovery. Of course, such aggressive moves could also pressure margins and spark a price war, but those are the types of risks T-Mobile has to take to change the competitive landscape in the US.
 
Although its new strategy is not without risks, it could help T-Mobile reverse its sliding market share, which stood at 9.6% at end-2012, behind Sprint with 16.1%, AT&T with 31.2% and Verizon Wireless with 33.5%, based on Informa data. T-Mobile’s share will increase to 12.2% after it closes the acquisition of MetroPCS, which is more likely now that the deal has received regulatory approvals.
 
 
Overall, T-Mobile’s new “un-carrier” strategy is the right move at the right time, and one that should help it close the gap on Sprint and offer stiffer competition to AT&T and Verizon Wireless.
 
*Note: Comparison is based on Samsung Galaxy SIII 16GB and two years of service from all operators. Device costs $550 up front at T-Mobile USA, with US$70/month plan for unlimited talk, text and data. With Sprint, the device cost is $100 with two-year contract, and plan is $110/month unlimited talk, text and data. Verizon Wireless is $200 for the device with two-year contract, and Share Everything plan at $100/month for 2GB and $40/month line rental.
 
Mike Roberts is a principal analyst for telecom networks and infrastructure at Informa Telecoms and Media. For more information, visit www.informatandm.com/

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