AH Primetime: Carrier Price Wars , Bad For Wall Street, But What About Us?

328186 t mobile ceo john legere


It is quite apparent that T-Mobile is upsetting Verizon, AT&T, Sprint, and most certainly the analysts and investors – especially the last two groups – because when there is money involved, there is a lot of concern. The main problem with those groups is that they are not normally interested in the least about what is important to the customer – but only in the bottom line and how any disruption in that bottom line will affect them. Some things happen for the greater good and sometimes it hurts a little in the bottom line, but then there is a "settling in" period and normalcy will return.


T-Mobile has shaken up the carrier industry this year – not just a little nudge – they have taken their competitors by the neck and literally shook the industry with wild ideas such as being the "Uncarrier," and eliminating the typical two-year contract. However, they did not stop there and in July, they announced its early upgrade program, JUMP!  In October, T-Mobile introduced free international roaming for when customers travel abroad.  They even went further and offered the first 200MB of data free to all tablet customers.

In the meantime, T-Mobile has been making improvements in its network as well – they aggressively started to launch its LTE service and purchased MetroPCS to add more spectrum to their portfolio, and is likely to participate in the Federal Communications Commission's TV broadcast spectrum auction scheduled for 2015. All of these things are being done to offer the customer good service now and in the future.

The customers are loving the price cuts and price wars that T-Mobile started, but the big question is would the other carriers really care, especially Sprint with 54 million customers, AT&T with approximately 109 million customers and Verizon about 119 million customers compared to T-Mobile's 45 million. The analysts were hoping that nobody would care, but the was retaliation from Sprint, which was rather expected, but when AT&T set their sights on T-Mobile, the analyst really started to get worried.

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All three of the networks introduced their own version of T-Mobile's JUMP! program – especially AT&T with their Next program and Verizon with its Edge program, but neither one was as robust or as cheap as JUMP!, and Sprint had their own One Up program. T-Mobile started a trend that they just cannot stop, and why should they – after four years of losses, they have now had three-quarters of growth.  AT&T finally reacted by offering to pay customers to switch from T-Mobile, then only days after that, Sprint offered big discounts for family and friends groups.  Then T-Mobile countered by offering to pay the large exit fees if customers would convert over from their current carrier to T-Mobile.

AT&T said that T-Mobile's customers were the very cost-conscious and not something either them or Verizon had to worry about.  AT&T kept out of this mess as long as they could, but T-Mobile's CEO, John Legere, just kept taunting them in public until they felt they had to respond and defend themselves and now analyst fear the margins will become smaller.

That sort of thing does not disrupt the cash flow in the industry too terribly much, but then the battles began. Jefferies analyst Michael McCormack said, "The most disappointing thing is that AT&T is reacting to T-Mobile. How long is it before Verizon reacts?"


Things could further escalate when Sprint makes its move to lure back customers that jumped ship during its network overhaul.  There may be some sort of "cease fire" if Sprint's bid to takeover T-Mobile ever comes to fruition, however, regulators that blocked AT&T's earlier bid to purchase T-Mobile, may do so with Sprint's attempt.  The government felt that the nation needed four carriers to compete and with T-Mobile on the upswing, it only validates their earlier decision.

Verizon Communications CEO Lowell McAdam said, "You don't really buy loyalty that well in my view, and those customers will switch back." Sprint CEO Dan Hesse also suggested the same thing and believes that most customers will eventually switch back.

When approached about the profit margins, Legere believes that you do not have to have the large EBITDA (earnings before interest, tax, depreciation, and amortization) of an AT&T's 42-percent and a Verizon's 51.1-percent to make enough money.  T-Mobile's has set its long-term goal at 34-36-percent, and claims that consumers could save $20 billion a year if they all switch over to T-Mobile – frightening thought for investors in the industry, but music to consumers ears.


Please let us know on our Google+ Page what you think of T-Mobile's "disruption" to business as usual – do you think it will be good for the industry as a whole, for the customer, and what about the investors.

source: Reuters