T-Mobile exec: iPhone isn't worth sacrifices

T-Mobile USA has lost customers because it does not carry Apple's (NASDAQ:AAPL) iPhone, but the company is not willing to make major sacrifices to add the device to its portfolio, said a T-Mobile executive.

"Make no mistake about it: We would love to carry the iPhone. However, we want the economies to be right for us," said Jim Alling, COO of T-Mobile USA. He made his comments during a wide-ranging discussion that featured executives from T-Mobile and MetroPCS (NYSE:PCS) during the Morgan Stanley 12th Annual Technology, Media & Telecoms Conference in Barcelona, Spain.

It appears T-Mobile and the operator it expects to merge with early next year, MetroPCS, are on the same page when it comes to the iPhone. Alling's comments about the iPhone echoed similar ones made about the device by MetroPCS COO Tom Keys in August, when he told our sister publication FierceWireless, "It would be harmful to MetroPCS to have to cut out part of our handset portfolio to accommodate one phone from one provider that the economics could be at risk."

Alling said T-Mobile would not want to sign a deal similar to one a competitor recently signed with Apple. That was likely a veiled reference to Sprint Nextel (NYSE:S), which began carrying the iPhone in late 2011 under a four-year, $15.5 billion deal with Apple. The device has substantially driven up Sprint's device subsidy cost, and the operator has said its iPhone business will not turn a profit until 2015. But Sprint is hoping that selling the iPhone will pay off in the long-term via reduced churn and higher data ARPUs.

Alling acknowledged that not carrying the iPhone has been detrimental to T-Mobile, saying, "We recognize that it has been a point of churn for us."

However, he said T-Mobile's SIM-only Value Plans have attracted numerous iPhone owners from other networks. He said there are currently some 1.5 million unlocked iPhones operating on T-Mobile's network, even though most of the 1900 MHz devices can only get GSM service from T-Mobile, at least until it has fully modernized all of its network to offer HSPA+ at 1900 MHz.

The introduction of the LTE-enabled iPhone 5 in the third quarter impacted T-Mobile's business and will likely continue to impact it in the fourth quarter, said Alling. However, T-Mobile was especially proactive in working to retain its existing customer base prior to the iPhone 5's introduction, mainly using the Samsung Galaxy as it flagship device, and that has helped mitigate the iPhone 5's impact, he added.

Alling also addressed the future of the new company T-Mobile and MetroPCS intend to form through their merger.

The $6 billion to $7 billion in synergies that have been cited as benefits of the deal are almost entirely derived from the network combinations. "We've been very conservative on other synergies and also other revenue opportunities that are in the marketplace," said Alling. "We are confident this is going to put us in a growth position," he added, acknowledging it has been years since T-Mobile has been in such a role.

He said the merged company will be able to grow the top line by 3-5 percent and the bottom line, thanks in large part to synergies, by 7-10 percent CAGR over the next five to 10 years.

T-Mobile is still on track to launch LTE in the second half of 2013 and will cover 200 million people with the technology by year-end 2013, said Neville Ray, T-Mobile's CTO. He reiterated that T-Mobile will launch LTE with 10x10 MHz of spectrum, but noted the MetroPCS spectrum T-Mobile is gaining will enable the operator to expand LTE service to 20x20 MHz in many markets.

MetroPCS had already rolled out LTE to 97 percent of its footprint by the end of the third quarter of 2012, said J. Braxton Carter, CFO at MetroPCS.

Over the next two to two and half years, the merged company will migrate customers from MetroPCS' CDMA network and will decommission a majority of MetroPCS' current base stations. MetroPCS has some 11,500-12,000 macrocells and 6,000 DAS nodes. "We want to keep about 1,500 of the macrocell sites," said Ray. The remaining 10,000, which mainly support the MetroPCS CDMA customer base, will be switched off.

Last month, Ray told FierceBroadbandWireless T-Mobile intends to retain all of the DAS nodes, which deliver deep in-building coverage.

T-Mobile also intends to retain the MetroPCS brand, apparently expanding it nationally as a sub-brand, akin to Sprint's Boost Mobile and Virgin Mobile USA operations. "There is so much potential expansion of this brand," said Alling, noting MetroPCS' geographic restrictions have kept it from competing aggressively on national level.

The rollout of the MetroPCS brand nationwide will leverage existing T-Mobile infrastructure, said Carter, saving costs while enabling new marketing opportunities.

Alling was asked about the impact of Softbank's pending $20.1 billion investment in Sprint, given that Softbank has been an aggressive discounter in Japan. Alling said operators need to compete on more than just price and that T-Mobile must work to ensure keep "perception tracking with reality," meaning that as T-Mobile modernizes and strengthens its network, the company will have to ensure that it promotes those benefits to potential customers.

T-Mobile was one of many suitors for MetroPCS over the past year. MetroPCS recently revealed in a filing with the U.S. Securities and Exchange Commission that it was courted by nearly a half-dozen different wireless companies prior to its Oct. 3 agreement to merge with T-Mobile USA. The filing cited one of the suitors as "Company C," which people said to be familiar with the matter identified as Charlie Ergen's Dish Network, reported the Wall Street Journal.

Dish, which reportedly courted MetroPCS since March, offered to buy MetroPCS for $11 a share, of which 30 percent would be paid as cash and 70 percent  as stock.

For more:
- see this Morgan Stanley webcast link
- see this RCR Wireless article
- see this Wall Street Journal article

Related articles:
MetroPCS courted by numerous wireless firms prior to T-Mobile deal
MetroPCS says T-Mobile deal will allow it to expand its brand nationwide
T-Mobile's Ray: MetroPCS' DAS will give us a small cell play
T-Mobile promises 20x20 MHz LTE network with MetroPCS spectrum
MetroPCS: We won't sacrifice smartphone portfolio for the iPhone
Sprint's Hesse takes $3.25M pay cut after iPhone cost complaints