T-Mobile Changes Clothes and Contracts

By Stephanie Blanchard, Digital Editor — April 10, 2013

The CEO of T-Mobile, John Legere, knows a thing or two about telecom. Despite a self-proclaimed lack of wireless experience, this is an industry veteran who has seen telecoms come and go. Legere showed up March 26th to T-Mobile’s NYC event to announce the carrier’s plans to become the “uncarrier.” And to let the world know the iPhone 5 will finally be available on its 4G network, starting April 12th.

“When did you stop wearing a tie?” Mobile Enterprise asked him, the day after the event.

“Tie? I wear t-Shirts and jeans!!!!” Legere replied by email.

Back when he was the CEO of Global Crossing, Legere had no problem appearing in a three-piece suit and giving speeches without profanity. Whether offering Congressional testimony before the Senate or talking telecom industry on CNBC Europe’s Squawk Box, Legere was serious and solemn when discussing the major players.

Even as recent as the announcement of the MetroPCS merger, just after becoming T-Mobile’s CEO, Legere had a different air. Something must have changed along the way, perhaps a personal rebranding designed to help the fourth place telecom. Because, just as Legere is striving to be an engaging man of the people, T-Mobile is re-positioning itself as the “uncarrier.”

“Stop the bullshit,” he said at the NYC press event, referring to the various and unbelievably high pricing plans. “There is not a g-- damn person in the world besides a wireless industry person that would understand why the hell this mess works this way.”

Global Experience
At the helm just after Global Crossing declared bankruptcy, Legere oversaw the fiber-optic network operator through its financial crises and endless lawsuits. He was credited with being the “thrifty outsider” instituting extensive layoffs and office closings, keeping the threat of liquidation at bay. Global Crossing was eventually sold to Level 3 Communications in 2011.

Legere painted himself as a newcomer then and appears to be doing so again. “The worst fear of the wireless industry is that someone from outside Oz starts looking at their industry,” he said at the NYC event.

This follows comments he made at the recent CES Show held this winter in Las Vegas, where Legere, wearing a baseball cap and bright tee shirt, lambasted his T-Mobile rivals. “If you landed from Mars on this planet and you looked at the way people sell to customers in this industry you would get back in your spaceship and go to where you came from.” 

Carriers, he said in disbelief, sell devices for cheap, locking customers into multiple-year contracts until the carrier can recoup the value.

Change Has Come
The March 26 press event in New York City confirmed T-Mobile’s plan to kill the contract. Of course, customers will still have to pay full price for their new phones, either up front or financed, because no company in their right mind is going to give away millions of devices, especially in combination with unlimited data plans. The iPhone 5, for example, will cost $99.99 down, followed by monthly payments, for qualified customers. The same goes for other smartphones, like the BlackBerry Z10 and the Samsung Galaxy S 4.

Mobile Enterprise asked several analysts if the “uncarrier” plan is going to make an impact.

"I think that, as far as a marketing gambit for T-Mobile, this has already helped to bubble them up higher in the attention span of many mobile buyers, not to mention in the public eye," said Chris Silva, industry analyst, Altimeter Group, by email. "Will the move be enough to force the hands of the likes of AT&T, Verizon and Sprint? Not right away.”

Silva believes T-Mobile is relying on the U.S. consumer frustration with contracts, the concept of “free” phones that actually lock in two-year service agreements, and the fact that mobile device lifecycle has shortened - some are replaced every 18 to 21 months.  

Silva also noted that when it comes to volume 3+ lines in a family plan   the pricing of T-Mobile becomes increasingly attractive. "Individual users may get little more than the lack of a contract, but families could stand to save significant amounts by bundling multiple lines given the price breaks that happen at three lines," he said.

However, “old habits die hard,” he said. “It will take some time before consumers here wise up to what our peers in Europe and elsewhere in the world already know paying upfront for the device you want with no strings attached makes for a better experience overall," he said. "I do salute T-Mobile on being willing to speak frankly about costs among competitors and in their own inventory."

Resisting Change
Phillip Redman, Research VP, Gartner, does not believe the selling model, commonly found outside the U.S., will be a success in this market at all, for several reasons.

"One, being the only operator with this model in the U.S., the competition on non-subsidized vs. subsidized phone pricing is high," he explained by email. "The biggest inhibitor to adoption and the biggest reason for churn is for the phone. Second, because you can't take T-Mobile's phone to another operator because of technology differences, there's really no advantage in owning the phone. T-Mobile locks its customers in with the cost of the phone vs. the contract."

The bottom line? "This market will not respond well to this," he said. "It's an interesting attempt by T-Mobile to make a change but not one I think will succeed.

Has The Spaceship Landed?
With the pending MetroPCS deal, T-Mobile is trying to solidify its position, not only as a major carrier with 42.5 million subscribers, but as the go-to brand for pre-paid service with nationwide reach. By having a large share of pre-paid customers, T-Mobile’s likely strategy going forward will be to steal customers from Sprint, (switching contract customers to pre-paid ones), while also going after Virgin Mobile and Leap subscribers.

Institutional Shareholder Services, an advisory firm, is asking shareholders to vote against the merger, citing the deal undervalues MetroPCS. Glass Lewis, proxy advisor, has also made the same recommendation against the proposed merger.

Update: T-Mobile is ramping up its iPhone push with a trade-in offer through June 16. According to the company’s press release, well-qualified customers who bring in their iPhone 4S or iPhone 4 can purchase an iPhone 5 for $0 down plus monthly payments, with a no annual service contract - the Simple Choice Plan. Depending on the device’s trade-in value, customers will also receive a credit of up to $120.

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