It started in 2012 wiith the article "Deadbeat Carrier Creative Destruction In The Ongoing Mobile Computing Wars". That's when I warned that margins in the carrier space will collapse - just as they did in the cellular handset space, as new business models and the effect if Android start to ripple and reverbrate. My latest article in the series, "The Smallest & Liveliest Of The DeadBeat Carriers Successfully Launched Wireless WMDs" detailed how T-Mobile will throw the gauntlet down and turn the wireless industry on its head - at great risk not just to margins but entire business models. To wit:
There are 4 major national carriers in the US, basically two big ones two smaller ones. The smallest of the 4, T-Mobile, consistently get beat up - losing out on the right to subsidize the iPhone at a loss (like AT&T used to and Sprint still does) and basically losing subscribers. Then they decided to do something about it. They said, "Hey, let's stop being deadbeats!". By changing their pricing plans and eliminating subsidies and instead selling pure access to their virtual pipes (like a carrier is supposed to) combined with actual "real" financing of the hardware (at competitive rates, nonetheless) they essentially committed DeadBeat Carrier Blashphemy. The only issue was, it worked, to the chagrin of the competition - reference:
As a matter of fact, in Deadbeat Carriers Compete, aka #MarginCompression!!! (exactly ONE year ago), I prognosticated that T-Mobile will kick off a pricing war that will bring about the greatest savings to the wireless consumer it has seen since the birth of the industry. I even went so far as to include and online interactive spreadsheet for readers to analyze their own savings - or potential therefore.
Well, fast forward to today and we get to see if Reggie's thesis is still holding water. From the Street.com in How the Consumer Wins In the Wireless Wars:
Carriers are engaging in a price war in order to win market share, with T-Mobile's "uncarrier" plans really shaking things up. T-Mobile has been aggressively trying to grab market shares by eliminating consumer "pain points," specifically the issue of locking customers into two-year contracts. T-Mobile has been rolling out programs to entice customers to switch their carrier, with the latest three offerings announced in April, where the company under the "Simple Starter," "Tablet Freedom" and "Overage Freedom" - eliminated all domestic overage charges for consumers, even those on legacy plans. T-Mobile had announced in March 2013 its "Simple Choice" plan that offered no annual service contract and low out-of-pocket costs on smartphones.
The company must be doing something right, given its impressive first-quarter subscriber growth of 2.4 million total net customer additions for the three months, making it the "fastest growing wireless company in America," it said in its earnings release last week.
Both Verizon and AT&T are combating T-Mobile by touting payment agreements for customersthat require little to no down payment, more data, and fewer service charges when it comes to multiple phones or being able to pay for the device itself in installments as appealing features to switch over. (Check with your carrier to see the latest offers available.)
That said, it's easy for consumers to get confused by the growing array of options, but it's clear that for once, the consumer is winning since costs associated with smartphones are becoming more transparent and understandable. "This trend, combined with a wider selection of fully functional mid-range and low-end devices, should help win over the undecided consumers but also will shift the growth away from the high end," Kantar stated.
Between the first quarter of 2013 and the first quarter of this year, spending on smartphones on contracts dropped to $93 from $119, while pre-pay spending dropped to $148 from $187, Kantar said.
Now, the mainstream media and sell side analytical community is just a year (or two) late in realizing this, but better late then never, eh? Also from the Street.com we have Why T-Mobile Is Beating AT&T and Verizon:
T-Mobile US shares were surging 8.1% to $31.67 following news that larger rival Sprint was prepping plans to propose a buyout of the carrier as its impressive subscriber growth for the first-quarter shows that consumers are digging its offerings.
T-Mobile, known for its "Un-carrier" initiatives, has been aggressively trying to grab market share by eliminating consumer "pain points," specifically the issue of locking customers into two-year contracts like Verizon , Sprint and AT&T . T-Mobile has been rolling out programs to entice customers to switch their carrier, with the latest three offerings announced in April, where the company under the "Simple Starter," "Tablet Freedom" and "Overage Freedom" - eliminated all domestic overage charges for consumers, even those on legacy plans. T-Mobile had announced in March 2013 its "Simple Choice" plan that offered no annual service contract and low out-of-pocket costs on smartphones.
The company must be doing something right, given its impressive first-quarter subscriber growth.
T-Mobile reported first-quarter earnings results earlier this morning in which it boasted 2.4 million total net customer additions for the three months, which included more than 1.8 million branded net customer additions, making it the "fastest growing wireless company in America," it said in its earnings release. T-Mobile ended the quarter with 49.1 million customers, it said. On the other hand, the company experienced "record low" churn of 1.5%, down 20 basis points from the fourth quarter and down 40 basis points from the year-earlier period.
... T-Mobile actually posted a net loss of $151 million, or 19 cents a share, for the three months ending March 31, compared to a profit of $106 million, or 20 cents a share in the year-earlier quarter, according to its quarterly filing. However, revenue at the Bellevue, Wash.-based company rose 47% to $6.87 billion year over year.
... Adjusted EBITDA came in at $1.1 billion, down 12.2% sequentially, which it attributed to increased equipment sales due to the "significant acceleration in customer growth and the success of its Un-carrier 4.0 - Contract Freedom offer." Adjusted EBITDA margin was 20% compared to 24% in the fourth quarter of 2013.<story_page_break>
... T-Mobile expects branded postpaid net additions between 2.8 million and 3.3 million for the full year and adjusted EBITDA to be in the range of $5.6 to $5.8 billion, it said.
Althouth T-Mobile may be hard pressed to replicate that pop in revenues and subscribers, I expect the trend to continue until and unless the other carriers match it in both pricing model and marketing efforts. I doubt they will do this until it is too late. They should, but they won't. That is unfortunate for thier investors for, as T-Mobile is the smallest of the top 4 national carriers, this is Verizon/ATT/Sprint's (in that order) fight to lose!
In addition, as revenue and subscriber rate increases subside, EBITDA may level off as the switching incentive costs amortize. This is not even considering what may happen if an entrepenurial and disruptive force (ex. Google Loon offshoots) appears on the scene.