Wireless Underdogs Keep Setting the Industry's Pace

The big boys don't always set the pace of the race.

AT&T and Verizon are America's largest telecoms by a wide margin. Each owns about 100 million subscriber accounts, while third-place alternative Sprint Nextel has just 55 million. Even further back, T-Mobile US sits at 40 million customers.

Ma Bell and Big Red are giants of the trade, longtime Dow Jones components, and generally the only two American wireless services that matter in many respects.

But you rarely see the dueling titans injecting much innovation into their business models. That seems to be a job for smaller players -- like Sprint and T-Mobile.

The latest example comes from T-Mobile, which is changing the way Americans buy wireless devices. The company got started with its so-called "Uncarrier" program earlier this year when it stopped subsidizing handset prices. Instead of a big up-front discount, T-Mobile customers now pay a down payment followed by two years of monthly bills. It all adds up to the full price of simply buying the handset without a contract. In return, T-Mobile won't charge any fees for leaving the service, so long as you pay what you owe on the handset. It's kind of like the traditional car-buying experience, scaled down to fit in your pocket.

T-Mobile USA CEO John Legere, presenting a new service plan. Image source: T-Mobile.

Like so many times before, Verizon and AT&T sort of followed suit. Both giants now have their own versions of smaller subsidies and easier handset upgrades. This may soon be the standard model across all major carriers, but it started small.

And T-Mobile is still pushing that envelope. If you're still jonesing for a zero-dollar upfront payment, Magenta's summer promotion gives you any handset with no money down.

You still have to pay the full price over the next two years -- something like $20 a month for high-end models -- but the initial sticker shock just disappeared. If this experiment works out, T-Mobile could make it the new normal.

And a few months later, I wouldn't be surprised to see the Dow members following suit -- again.

Verizon and AT&T do have advantages that T-Mobile and Sprint just can't match. Being bigger and richer, they have built the largest coverage maps and arguably the most reliable services. Sprint just got a major cash infusion when its majority-owner deal with Japanese carrier Softbank closed, and T-Mobile's separation from its German parent also came with a generous helping of investable capital. But even so, the smaller operators remain smaller and weaker, chasing the big guys from behind.

There may be a wireless revolution underway as we speak, but let's just say I don't expect Sprint and T-Mobile to kick Verizon and AT&T off the Dow anytime soon. Rather, pressure from below will keep changing how the two leaders run their businesses.

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The article Wireless Underdogs Keep Setting the Industry's Pace originally appeared on Fool.com.

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