Last week T-Mobile not only announced the nationwide launch of its low band 5G network (scheduled for December 6, 2019) but also three new and significant uncarrier moves that will go into effect if and when T-Mobile is allowed to merge with Sprint. The announcement will disrupt the industry but due to its magnitude also shows how nervous T-Mobile is about the prospects of closing the merger. While I was certain that T-Mobile would prevail in court before the announcement, I am less certain now as the promises are just too lavish and clearly aimed at swaying mostly Democratic Attorneys General.
T-Mobile will launch its nationwide low band 5G network covering 200 million people on December 6 with two handsets: the Samsung Note10+ 5G and the OnePlus 7T Pro 5G McLaren. In all likelihood T-Mobile will be the only nationwide 5G network provider until the summer of 2020.
Initially, T-Mobile will set aside dedicated spectrum for its 5G users as it has not allocated all 600 MHz for 4G yet. I would expect T-Mobile to launch dynamic spectrum sharing (DSS) when devices become available in the first half of 2020. Without DSS, 4G and 5G will have dedicated spectrum for each technology, which impact download speeds negatively compared to DSS. Basically on average, a 10x10 for one technology and a 20x20 for the other rather than 30x30 allocated dynamically.
With dynamic spectrum sharing T-Mobile will be able to provide service without impacting its existing 26 million 4G customers being served on T-Mobile’s 600 MHz spectrum. As TV broadcasters clear their 600 MHz spectrum, T-Mobile will expand its network to the rest of the country. Since 4G LTE Advanced and 5G are essentially using the same air interface, the speed difference experienced by customers using the 600 MHz band vs those on 5G should be negligible at the outset. Regardless, launching the first nationwide 5G network gives T-Mobile important bragging rights, service differentiation and an important marketing message.
It is remarkable that Verizon 2.0 would let a competitor establish such an early lead with a technology and marketing messaging, something Verizon 1.0 would never have allowed. I would expect AT&T to launch 5G in some markets before the end of the year based on what AT&T has publicly said already, with a possibility of a launch similar to what T-Mobile has announced. T-Mobile’s December 6 launch will move the U.S. into the global leadership position for 5G population. This will be eclipsed when the Chinese operators light up their 5G networks covering the largest 50 Chinese cities and roughly 212 million people.
The first T-Mobile uncarrier move if the merger gets approved—called Connecting Heroes Initiative—would bring for the next 10 years free wireless voice and data to first responder organizations in the United States. The offer is to provide free unlimited talk, text and smartphone data available to state, county and local services on a first come, first served basis.
First responders would enjoy prioritization, but not preemption to put them ahead of consumers and businesses. The difference between the two is significant when the network is overloaded in the case of a large catastrophe. Prioritization means that first responders will get preferential treatment to access the network. If the network is not at capacity, then this is sufficient for your everyday emergencies. If the network is full, then with only prioritization the first responder would have to wait until someone voluntarily gets off the network before the first responder could make the call. With preemption, when first responders need to access the network and make a call and the network is at capacity, someone will get kicked off the network to allow the first responders to use the network. This is important when we have a significant catastrophe like large wild fires or September 11 type of events where everyone tries to get in touch with their loved ones. Preemption, which is what AT&T’s FirstNet offers, is significantly more powerful than prioritization, which is what T-Mobile offers. If, God forbids, something really bad happens, the network is overloaded, and the first responder can’t get access to the network because they have only prioritization and not preemption and as a result lives get lost, I wouldn’t want to be the first responder agency chief that made the decision to get a free service with prioritization rather than the paid service designed for first responder needs.
T-Mobile estimates that first responders spend $7.7 billion on wireless telecommunications and this would go a long way to address the constrained budgets of first responders. Interestingly, T-Mobile is not offering free laptop or connected device data as part of this offer. For any first responder agency this would mean either to pay T-Mobile for all the data coming from laptops in police cars and medical equipment in ambulances or have a multi-carrier option with AT&T’s FirstNet or Verizon.
It is important to note that AT&T as part of its FirstNet contract has to build its network to contractual network standards such as a dedicated FirstNet core, something T-Mobile does not have to do. We also do not know how many first responder agencies T-Mobile can on-board quickly for this free offer. In any case, since T-Mobile does not have a significant share of the first responder market for laptops and connected devices, data is an upsell opportunity for the company.
The pressure from this offer will most directly impact AT&T and Verizon. The beauty of this offer is that the less successful it is, the better for T-Mobile. It is quite certain that many first responder agencies will use the T-Mobile offer as leverage for better prices with the implicit threat to reduce their contracts with AT&T and Verizon. If it is successful, T-Mobile has upside from the non-smartphone data that is critical for first responders to have. AT&T, under pressure from Elliot Management to improve margins, and Verizon will probably experience a revenue, profit and margin hit from this particular T-Mobile initiative.
The second move is Project 10Million. This initiative is a variation on a “cable move” because it is very similar to what Comcast offered to get its NBCUniversal acquisition over the finish line—low cost broadband to low income Americans. The Project 10Million initiative represents T-Mobile’s entrance into the fixed mobile business and its expansion into the 30 million households that do not have 25/3 Mbit/s broadband.
With 100 Mbit/s, T-Mobile will be able to beat DSL and slow cable systems handily and provide these households with broadband. It will be interesting to see if there will be data caps or not. Specifically, T-Mobile announced that for five years, it would offer 10 million households with children free internet access for up to 100 GB, and install $700 million worth of equipment to be able to get a free Wi-Fi hotspot and select Wi-Fi enabled devices at T-Mobile’s cost.
This should help cover the roughly 5 million households with children who do not have internet access. While 100 GB is more than sufficient to do homework, it should also be obvious that the free data will be also used for non-homework activities. Children are children after all. To put things in perspective, 100 GB is 7 hours of 4k video or 66 hours of HD video. What happens after 100 GB has run out and homework needs to be done?
The third move is T-Mobile Connect, a prepaid offer that provides 2 GB of data and unlimited voice and text for $15. In addition, every year for the next five years the data allowance will increase by 500 MB. T-Mobile Connect undercuts most competitors by $10 or more per month. It will put tremendous pressure on MVNOs in the market and potentially drive some of them out of the market.
For example, Tracfone offers 2 GB of data unlimited voice and text for $25 per month and has an EBIT margin of 7%. A 7% EBIT margin indicates that Tracfone makes $1.75 on the $25 plan, which T-Mobile will sell for $15. Over the last few earnings calls, cable providers have earned T-Mobile’s color commentary as they have grown significantly by offering low cost plans. T-Mobile Connect is as squarely aimed at them as it is at Dish. As a new market entrant that will inherit Sprint’s struggling prepaid business, Dish will be particularly challenged by T-Mobile Connect.
The New T-Mobile uncarrier moves are roundhouse kicks against the competition. It pressures AT&T and Verizon on the public safety market, opens up the fixed broadband market to wireless, and puts tremendous pressure on the low end of the market.
They are also prime examples of how a company can use asymmetry to its advantage. T-Mobile identified segments where its competition is strong and profitable, such as first responder agencies, and where it has no meaningful business that would get cannibalized by an aggressive move. Connecting Heroes Initiative, even if nobody takes T-Mobile up on the offer, will be a success as it devalues AT&T’s and Verizon’s opportunity. If agencies take T-Mobile up, it will make money on the non-smartphone part of the business.
Project 10Million is another example; it's aimed at customers who do not have broadband. While T-Mobile is spending $700 million on free equipment and will sell other equipment at cost, the upside is significant by connecting the participants with smartphone subscriptions. The $15 plan, on the other hand, is anything but asymmetric; it’s goes directly against the business of its most dangerous competitors right now, the cable companies and exploits the difference between owner economics and MVNO economics.
When looking at the three uncarrier moves that the New T-Mobile would launch if the merger is approved, it also becomes clear that these offers were written with certain constituencies in mind. The Connecting Heroes Initiative is focused on police and fire chiefs as well as officials with budget control. The Project 10Million is aimed at teacher’s unions, and T-Mobile Connect seems to be targeted at low income communities and their leaders and advocates.
Each of these constituencies are traditional allies of the Democratic Party and the Attorneys General who sued against the merger are predominantly Democrats. My only concern is that T-Mobile is overdoing the wooing of the Attorneys General. T-Mobile is bringing a diamond ring to its date with them when flowers should have done the trick. Why does T-Mobile think it needs to try so hard?
Roger Entner is the founder and analyst at Recon Analytics. He received an honorary doctor of science degree from Heriot-Watt University. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications. Follow Roger on Twitter @rogerentner.
"Industry Voices" are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by Fierce staff. They do not represent the opinions of Fierce.
Article updated Nov. 22 to clarify T-Mobile's 5G spectrum allocation and that the first responder agency offer will provide priority to first responders, but not preemption.