T-Mobile US (NYSE:TMUS) has been the fastest-growing wireless carrier in the last few years, but even its outspoken and aggressive CEO John Legere acknowledges that in an industry where scale truly matters, the company needs more spectrum to effectively compete.
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In the last six quarters T-Mobile has added 12.2 million total customers, including 7 million postpaid subscribers. Yet Legere promised that if T-Mobile can get more spectrum, he will increase competitive pressure on T-Mobile's rivals even more and consumers will see the benefits. "There's so much work to do on solving the problems of this screwed up wireless industry," he said in a profile story in Newsweek.
T-Mobile fought unsuccessfully to get the FCC to increase the spectrum reserve from 30 MHz of spectrum in a given market to 40 MHz in next year's incentive auction of 600 MHz broadcast TV spectrum. T-Mobile has been the major carrier that has been most enthusiastic about the auction. Verizon Wireless (NYSE: VZ) and AT&T Mobility (NYSE: T) remain far ahead in low-band spectrum holdings, controlling around 73 percent of such airwaves.
However, even though the 600 MHz auction is scheduled to start in March 2016, the airwaves likely will not be deployed commercially by carriers until 2018 or 2019, so T-Mobile is going to need to try to find ways to remain competitive until then.
Yet T-Mobile recently got a boost. Apple's (NASDAQ: AAPL) iPhone 6s and 6s Plus support LTE Band 12 in the 700 MHz A Block, which T-Mobile has been rapidly deploying where it has such spectrum. That should give T-Mobile a lift because customers who get the new iPhones will have access to broader coverage, especially in suburban and rural markets. T-Mobile said last month that its 700 MHz LTE deployment now covers 130 million POPs and that the company will get close to 190 million POPs by the end of the year.
Legere and T-Mobile are going to use every play in the playbook to keep the intensity up, to needle rivals and try to win customers. Legere said that while customers continue to love their smartphones they are not that fond of their carriers. "Part of my style is to set a compelling strategy and declare victory," he said.
T-Mobile pushed the U.S. industry toward equipment installment plans in 2013, and Sprint (NYSE: S) picked up the baton last year and introduced leasing plans for phones, which T-Mobile and now Apple also have embraced. However, that shift, in which carriers have foregone service revenue in exchange for higher equipment revenues, has forced Verizon and AT&T to lose billions in revenue over the last few years.
Industry analyst Chetan Sharma noted to Newsweek that U.S. mobile data pricing plunged by 77 percent on average in 2014, even as data usage rose. Legere wants to continue the pressure and push down the EBITDA margins of Verizon and AT&T. In the second quarter, Verizon's EBITDA margin on wireless service revenues was 56.1 percent, up from 50.3 percent a year ago. AT&T said its wireless EBITDA service margin was a record 48.5 percent, up from 42.6 percent in the year-ago period. "It's almost abusive!" Legere declared, suggesting those margins should be more like 32 to 34 percent, which would cost Verizon around $10 billion.
For more:
- see this Newsweek article
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