John Legere, CEO of T-Mobile US.  (Source: T-Mobile US)
T-Mobile shakes the establishment with impressive results, becomes the force AT&T tried to stop

The biggest mobile market winner in the third quarter of 2013 wasn't America's top carrier Verizon Wireless, which added 927,000 new net customers in the quarter.  It wasn't AT&T Inc. (T), which added 363,000 new net customers.  And it certainly wasn't Sprint Corp. (S), which lost 313,000 net customers for the quarter.

I. And the Winner is... T-Mobile USA

The biggest winner was in fact the smallest of America's "big four" of the mobile carrier sector -- T-Mobile USA.

The Deutsche Telekom AG (ETR:DTE) subsidiary had already seen a strong Q2, adding subscribers and returning to profitability following its merger with prepaid carrier MetroPCS.  Q3 was yet another major success as T-Mobile boosted new net subscriptions by 1.0 million, including 672,000 postpaid customers (643,000 of which were in the T-Mobile USA brand).

T-Mobile uncarrier
T-Mobile USA's "uncarrier" strategy isn't just saving customers money -- it's a frightening threat to the AT&T-Verizon duopoly status quo. [Image Source: Digital Trends]

T-Mobile has now been the fastest growing carrier in the U.S. for two straight carriers (Verizon beat T-Mobile in Q2 in total net adds, but T-Mobile saw more branded growth).

T-Mobile has finally found success acting as a budget carrier who reduces its own expenses to turn a modest profit.  Verizon, by contrast turns larger profits by charging customers much more for their equivalent contracts, while offering them phones up front -- sort of like the mortgage broker of the phone world.

II. Anatomy of the Success: How T-Mobile's Rebellion Against Interest-Ridden Subsidized Phones is Paying Off For Customers and Brand

By not subsidizing phones, T-Mobile avoids paying inflated fees to devicemakers, while passing along those savings to customers at lower rates.  T-Mobile even softens the blow of hardware costs via a clever financing strategy, by giving customers phones with only a small upfront cost (similar to its subsidized competitors) with the remain cost spread out over monthly payments (customers are also free to buy the devices in full up front).

Its customers are not bound by their monthly contracts and are free to leave at any time, yet have the convenience of a normal postpaid contract.

Perhaps best of all, T-Mobile's recently announced "JUMP" program allows users to pay a $10 USD monthly fee that both offers free device replacement, and a free trade-in upgrade every six months.  AT&T, for example, only offers yearly upgrades and forces you to pay your remaining installation payments on the device that you traded in; T-Mobile voids the remaining payments on your old device, potentially saving you hundreds of dollars.

T-Mobile wordl
T-Mobile's world (free) data plan offers customers relief from the massive overages some experience while travelling.

This quarter T-Mobile also added another unique perk leverage its relationship with German parent Deutsche Telekom and an alliance of global carriers to offer a "Simple Choice global data", which kills roaming fees in 115 destinations.  The only caveat is that you're capped at speeds of 128 kbps, but T-Mobile USA offers even more options by offering affordable "passes" so customers can add full speed data to their plan anywhere from a week to a month.  Once you run over the allowance from these extra packages, there are no additional charges; you just kick back to the free, lower speed connection.

T-Mobile USA's LTE expansion is also proving highly successful.  Like AT&T, T-Mobile USA came into the LTE game late, trying to bide its time as long as possible by rebranding HSPA+ "3.5G" technologies as "4G".  Marketing gimmicks and semantics aside, though, it's clear that T-Mobile is doing its homework while other late comers like Sprint are struggling to keep up.

In Q3 T-Mobile's new LTE network reached 203 million Americans in 254 metro areas.  Contrast that with Sprint, who only currently covers 230 million markets, and hopes to hit 200 million by the end of 2013.  In other words Sprint -- the other budget carrier -- is in a very bad spot in many ways.  Traditionally the logic was that among budget carriers T-Mobile USA was more affordable in terms of plans, but Sprint had better coverage.  Now that equation has shifted with both the coverage and price advantage being owned by T-Mobile USA.

T-Mobile LTE
T-Mobile has dramatically accelerated its LTE coverage (bright pink) deployment, as Sprint has struggled at a more sluggish pace.

T-Mobile is looking to leverage this lead to accelerate subscriber adds by tapping into the burgeoning LTE tablet PC market. T-Mobile and various tablet providers are offering 200 MB of free data per month to T-Mobile subscribers who also have an LTE tablet, and offering the same installment payment plans for a variety of popular tablets as it has for smartphones. While 200 MB clearly is just the tip of the iceberg for users who stream music or download a lot of apps, it'll be enough for some who use a tablet lightly.  And T-Mobile's paid tablet plans are among the most affordable in the nation, much like its smartphone plans.

III. Customers Flock to T-Mobile as it Guns for Third Place

It's clear that American customers are appreciating the value that T-Mobile USA is bringing.

Even T-Mobile USA's small, struggling branded prepaid business returned to growth, with 24,000 net additions.  T-Mobile's brand churn -- a measure of how many customers jump to another carrier -- was at a relatively good 1.7 percent (lower is better), compared to 2.0 for Sprint, 1.07 for AT&T, and 0.97 for Verizon.

T-Mobile's churn may look weaker compared to the "big boys" of the telecom market -- Verizon and AT&T -- but it's actually highly impressive given that T-Mobile USA encourages customers to migrate from its platform if they find a better deal elsewhere, where as AT&T and Verizon generally try to make it as hard as possible to leave.

T-MobileT-Mobile doesn't try to stop customers from leaving.

With 45 million customers, T-Mobile is plodding ever closer to Sprint's current total of 54 million customers.  We could see T-Mobile pass Sprint as early as Q4 2014 or Q1 2015, if the carriers continue on their current trajectories.  The wild card of course is Sprint's majority owner, Japan's Softbank Corp. (TYO:9984).

Despite declaring "survivalist" mergers "not ideal", Sprint CEO Dan Hesse was eventually forced to give a survivalist merger with the successful Softbank his thumbs up.

Softbank is a ruthless competitor in its home nation, and likely will look to dramatically shift Sprint's failing strategy.  It was unable to do so last quarter as its purchase only completed midway through the quarter.  Looking ahead to 2014, don't be surprised if Sprint makes big changes, and steps up spending on its LTE rollout -- the question will be whether these efforts can turn around its falling brand and steal any steam from a red (or pink?) hot T-Mobile USA.

Sprint (CEO Dan Hesse pictured) has thus far failed to put the brakes on its downward slide.
[Image Source: The Verge]

T-Mobile reports that its own new partner -- MetroPCS -- is already delivering synergies as the brands' LTE network holdings boosted each others' customers in Q3.  T-Mobile writes that key landmarks for the partnership include:
  • Rapid progress with the integration of MetroPCS – already expanded MetroPCS brand into 15 new markets
    • More than 1.5 million MetroPCS customers on the T-Mobile network
    • Expanding the MetroPCS brand into an additional 15 markets on November 21
Those synergies also helped to propel T-Mobile to net earnings before tax interest and depreciation (EBITDA) to $1.344B USD, up over 6 percent on a quarter-to-quarter basis.

IV. T-Mobile Raises its Own Outlook Aggressively 

Where as Sprint posted a gloomy outlook for the rest of 2013 in terms of finances and subscribers, and Verizon/AT&T largely held steady, T-Mobile's results were so good that it in a bullish turn actually raised its modest outlook.  T-Mobile raised its yearly profit forecast and bumped its subscriber expectations from growth of 1.0 to 1.2 million branded postpaid customers to 1.6 to 1.8 million.  So far T-Mobile has seen (branded post-paid subscriptions):
  • Q1: -199,000
  • Q2:  688,000
  • Q3:  672,000
So this indcates that T-Mobile USA expects between 441,000 and 641,000 branded postpaid customers in Q4 2013, a modest goal.  T-Mobile USA could pass this target, but be aware that budget carriers like T-Mobile typically see subscriptions dip in Q4 as holiday splurging tempts customers to pricey "exclusive" devices on Verizon and AT&T, like the Lumia 929.

T-Mobiles store
T-Mobile's upped its estimates of subscriber adds for Q4.

For now T-Mobile CEO and President John Legere is content with the ruckus he raised in Q3, remarking:

T-Mobile’s Un-carrier approach is resonating with consumers. We added more than 1 million customers and led the industry with 643,000 branded postpaid phone additions because we are fixing the things that drive customers crazy.  Part of our customer momentum comes from the MetroPCS acquisition. With MetroPCS we are making great progress, including the planned additional expansion of the MetroPCS brand into another 15 additional markets by November 21. Our momentum is great and we have confidence that we can continue to deliver sustainable and profitable growth.

It looks like AT&T's claims that swallowing T-Mobile  -- a move that it admitted would cause "some harm" to U.S. consumers -- was justified has proven patently false.  Verizon also didn't fight the deal very hard.  Both carriers falsely claimed that if T-Mobile wasn't taken off the market then, it would fail.  Now those claims are looking more and more fallacious by the quarter.

AT&T tried to blow up T-Mobile USA before its rebellion gained ground -- but the attempt failed.
[Image Source: TMONews]

In retrospect it increasingly appears that AT&T was hoping to knock out a potential challenger before it got too far.  And Verizon was willing to stand back and let that happen, as ultimately less competition was good for it as well.

Neither AT&T nor Verizon is terribly interested in the dying, debt-ridden Sprint brand.  But T-Mobile USA had potential.  AT&T had hoped to gobble it up now before it became dangerous, stepping one step closer to regaining the monopoly it once held on the U.S. phone market.  Instead, T-Mobile USA found other allies to allow it to stay independent yet aggressive.  And now it's the hottest carrier on the U.S. market, a nightmare scenario for the Verizon and AT&T -- inheritors of the American Telephone and Telegraph/Bell hegemony, which the government long helped to create and protect, yet fatefully chose to destroy in the late 1970s.

Source: T-Mobile USA [on Business Wire]

"If a man really wants to make a million dollars, the best way would be to start his own religion." -- Scientology founder L. Ron. Hubbard

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