T-Mobile cajoling 2G users off 1900 MHz

T-Mobile USA will increase its capital expenditures through the rest of the year as it goes all in on its network modernization project while simultaneously dabbling in one-off incentives to get users to dump their 2G devices.

The operator, which lost a net 205,000 subscribers during 2012's second quarter, said its capex will increase during the second half of 2012 as it upgrades its network, a move that should help the company become more competitive with other operators next year as it delivers improved network speeds and possibly popular devices such as the Apple (NASDAQ:AAPL) iPhone.

According to Telecom Lead, T-Mobile reported its cash capex was $539 million during the second quarter, a decrease of 27.8 percent from the first quarter, and a decrease of 21.7 percent from the year-ago quarter. It credited payment timing as a contributing factor to the lower cash capex, which will soon begin to ramp up.

T-Mobile has pledged to spend around $4 billion to roll out LTE over its 1700/2100 MHz AWS spectrum and shift HSPA+ services from the AWS frequencies to its 1900 MHz spectrum, which is currently used for 2G GSM service. It has selected Ericsson (NASDAQ:ERIC) and Nokia Siemens Networks as vendors for the modernization project.

The operator faces a tricky mission in its effort to refarm 1900 MHz spectrum, which still serves domestic GSM customers, M2M users as well as international GSM roamers. Last month, TmoNews reported the operator had initiated a "3G Device Upgrade Pilot" in five cities: Los Angeles, Boston, New York, Washington, D.C. and Miami.

The three-week-long marketing pilot, which reportedly ended July 30, offered a host of different incentives to encourage customers to give up their GSM 1900 MHz devices and upgrade to 3G or 4G devices. Only 5,000 customers in each market were sent a mailer notifying them of the incentives. Qualifying customers were on Classic or Legacy rate plans and used 1,000 or more minutes per month on a 2G-only device.

The pilot test was likely being used as a precursor to larger regional incentive offers as T-Mobile works to shift GSM users away from its 1900 MHz spectrum in order to make room for HSPA+ service.

One major benefit of bringing HSPA+ to 1900 MHz is that legacy iPhones on T-Mobile's networks will be able to receive high-speed data services. It has been estimated that close to 1 million unlocked iPhones are operating on T-Mobile's 1900 MHz network, even though the operator does not sell them and the devices are currently only able to receive 2G service from T-Mobile in that spectrum.

T-Mobile will be skipped over by the impending release of the iPhone 5, predicts. Eric Costa, a research analyst in Technology Business Research's Networking and Mobility Practice. But at least the refarming effort will position T-Mobile for future iPhone sales.

"The 1900 MHz refarm will allow for future iPhone access should a deal be signed. This would boost data consumption as iPhone users consume the highest amount of data on average. Unlike the other Tier 1 operators, T-Mobile will use the iPhone as a defensive strategy to help retain subscribers already on its network, as other subscribers on other networks already have access to the iPhone without needing to switch carriers," said Costa.

Rival operator AT&T Mobility (NYSE:T) is also busily refarming its 2G spectrum and has already announced the planned shuttering of its GSM service by early 2017 as it refarms its 850 MHz and 1900 MHz spectrum. T-Mobile has maintained that it will continue to offer 2G services to existing customers, many of which are M2M users.

Regarding AT&T's plans, Stefan Zehle of Coleago Consulting wrote in a recent Telecom Asia column that legacy customers are an issue for operators engaged in refarming as "customers who make the least usage and have the lowest bills hang on to their old phones the longest."

Zehle noted that in AT&T's case, it might seem sensible to leave a few slivers of spectrum available for GSM use since any spectrum that is less than 5-MHz wide cannot be refarmed for HSPA and LTE. However, he said such thinking is a misconception because "operating the legacy 2G network outweighs the revenue made from these customers."

For more:
- see this Telecom Lead article
- see this TmoNews blog article
- see this Technology Business Research post
- see this Telecom Asia article

Related articles:
Report: T-Mobile USA targeted in private equity buyout
T-Mobile continues to bleed postpaid subs in Q2
T-Mobile searches for VoLTE specialists
AT&T will shutter its 2G network by 2017
AT&T starts refarming 2G spectrum in New York City
T-Mobile picks Ericsson, NSN as its LTE vendors
AT&T looks to refarm 2G spectrum, urges customers to upgrade