With hundreds of wireless operators spread throughout the country, T-Mobile USA Inc.’s position as the sixth-largest carrier would seem to be one of the more enviable. The carrier has posted stronger customer growth in the past year than most of its larger rivals. Its 11.5 million subscribers represent more than 10 percent of the customers in the world’s second-largest market.
That position begins to look less desirable when you realize T-Mobile USA is the smallest of the six nationwide operators and the gap between it and the largest operator, Verizon Wireless, grows wider by the quarter. In addition, T-Mobile USA is slowly losing its unique position as the country’s only nationwide GSM carrier and is regarded throughout the industry as having the most churn-happy customer base.
Analysts note to this point T-Mobile USA has been able to overcome these deficiencies, and some would say even thrive, by differentiating itself as the value leader among its peers.
“They are perceived as the value leader in the wireless space,” said Roger Entner, program manager of wireless and mobile services at the Yankee Group. “But they have to be to overcome their position as the smallest nationwide operator.”
That perception is backed by the carrier’s calling rate plans, which in most cases offer lower price-per-minute options to customers, and recent changes to its wireless data service rate plans, which undercut most of its competitors. Voice-calling advantages begin at the $40 price point, where T-Mobile USA offers as many as 600 more anytime calling minutes than its competitors, and extend to the carrier’s highest-priced $130 per-month plan, which offers a price-per-minute less than half that of other carriers.
That “value” pricing is one reason T-Mobile USA has grown in the first half of this year, dwarfing most of its larger competitors. Through July, T-Mobile USA added more than 1.5 million subscribers to its network, compared with 729,000 subscribers added by Cingular Wireless L.L.C., 703,000 customers added by AT&T Wireless Services Inc., 559,000 new Sprint PCS subscribers and 1.1 million new Nextel Communications Inc. customers. Verizon Wireless was the only carrier to top T-Mobile USA’s growth during the first six months of the year. However, Verizon widened its lead as the largest nationwide carrier with 2.1 million subscriber additions.
T-Mobile USA recently ratcheted up the pricing pressure by introducing a $40 per month rate plan that includes an extra day of free weekend calling compared with the traditional two-day free weekend offerings from its competitors. T-Mobile USA also reduced the price for unlimited access to its GPRS data network to $30 per month compared with $80 per month offerings from other nationwide GSM carriers and slashed the price for access to its Wi-Fi HotSpot service to as low as $20 per month for current voice customers.
“Generally speaking, people think of T-Mobile as a disrupter in the market,” said Andrew Cole, global wireless practice leader at consulting firm Adventis Corp. “They are extremely aggressive in their rate plans.”
Cole added that while being known as the low-price provider may not be the best for the company’s bottom line, it at least gives T-Mobile USA an identity in a muddled industry environment.
“I guess you can say it’s better to have some differentiation than none at all,” Cole said.
While most of its competitors have tried to match certain T-Mobile USA pricing promotions, including a rash of $40 per month for 1,000 anytime calling minutes late last year, the Yankee Group’s Entner noted few carriers are able to make those plans fit into their financial picture.
“T-Mobile has the second-best cost structure in the industry behind Verizon Wireless, and they are taking advantage of that through their pricing plans,” Entner explained, adding T-Mobile USA has also been effective in garnering the lowest price from its network suppliers in an attempt to control network costs.
T-Mobile USA’s tightly controlled cost structure is expected to be tested later this month with the introduction of wireless local number portability, which many expect will drive carriers to increase retention efforts and offer even more aggressively priced rate plans.
In the short-term, analysts are mixed on the impact WLNP will have on T-Mobile USA. Some note the carrier’s attractive pricing plans and extensive handset selection will prove a compelling draw for customers. Others think the carrier’s perceived network-quality issues and relatively high customer churn leading into WLNP could spell doom for the carrier.
Entner added that T-Mobile USA’s value position in the marketplace should serve the carrier well once WLNP is implemented.
“There will be two winners with LNP,” predicted Entner. “The carrier that is perceived as the quality leader, which is Verizon Wireless. And the carrier that is perceived as the value leader, which is T-Mobile.”
