How T-Mobile Plans to Attack AT&T and Verizon
Howard Stern and T-Mobile CEO John Legere may operate in completely different businesses, but the phone company boss has learned a lesson from the radio shock jock.
No T-Mobile hasn't started spanking strippers or having its staff make phony calls. Instead the company -- through its CEO -- is taking shots at its bigger rivals. Stern -- when he was a much lesser-known personality working in local markets -- did exactly the same thing. The man now known to his fans as the "King of All Media" would identify the top DJs in the market he was entering and ruthlessly attack them on the air.
Either the competitors themselves or the local media would pick up on the taunting and turn a one-sided fight into an actual war. Stern would immediately be elevated to contender status simply by being linked to the current leader as a competitor. Legere is doing exactly the same thing as he seeks to make T-Mobile a player in a field dominated by AT&T , Verizon , and Sprint .
T-Mobile CEO gets aggressive
Legere took a shot at his competitors on March 7 in a press release announcing a pricing change for T-Mobile.
"In the mobile age, wireless data caps and overage fees are just this side of extortion," said Legere. "Take the basic plans from the Big Two with ridiculously low data limits that hit you with fat overages each month. It's like getting your data from the neighborhood loan shark and paying 100% interest when the bill comes due. It's the classic shakedown."
It's not the first time Legere has taken a shot at his rivals. By going after his competitors and not just offering an alternative but mocking the status quo, Legere is getting the media to pay attention.
When Stern did that it inevitably ended in a funeral -- a live radio show where the controversial host mock-buried his competitor when Stern became number one in the market. Whether T-Mobile has any funerals in its future for competitors remains to be seen, but Legere certainly has made it feel like his team is in the game.
Where the cell phone industry stands
In the United States Verizon has about 31% market share, AT&T has about 27%, while Sprint and T-Mobile each have around 11%, according to Gary Kim, writing at Techzone360.com. The major challenge facing any carrier hoping to steal market share from the big two is that despite the many commercials attempting to get them to do so -- customers don't switch providers very often.
Parks Associates consumer data show that almost 50% of U.S. mobile phone service customers did not change providers over the last 10 years. "Fully half of the customer base virtually never changes providers, meaning that all switching behavior is concentrated on just half the total subscriber base," the research company reported .
Only 13% of subscribers switched three times or more in the last 10 years.
"The real battle to shift consumer allegiance would be fought over about 13% of customers, disproportionately concentrated among prepaid accounts," the Parks Associates report said.
It's certainly possible T-Mobile can lure people who rarely switch, but it's less likely. That makes making an assault on the big two a daunting task that may benefit from Legere's big talk.
Sprint may change the game
Sprint also wants to take on the big two, and one of its strategies is to buy T-Mobile. That merger is far from certain as T-Mobile may fight the move and federal regulators will look at it closely. Though the combined companies would still service fewer mobile subscribers than AT&T and Verizon, the FCC has been against the idea of more consolidation in the space, Geekwire reported.
The Justice Department and the FCC have said, according to Geekwire, that they're happy with the number of players in the wireless market and don't really want to see it shrink from four to three major carriers.
"It is arguable that the industry has in fact become more competitive for the industry's top two companies, as #3 and #4 players Sprint and T-Mobile have strengthened their competing nationwide networks with ongoing buildouts and spectrum acquisitions (i.e., T-Mobile's acquisition of MetroPCS and Sprint's acquisition of Clearwire)," Goldman analysts told Geekwire. "This has enabled them to be more competitive vs. Verizon and AT&T in key urban markets than previously, a dynamic that could continue to keep a lid on industry margins near term despite a very high level of consolidation."
A Sprint/T-Mobile merger or acquisition may not change the aggressive nature of T-Mobile's attempt to compete, as Sprint Chairman Masayoshi Son has not exactly been kind in his description of the big two.
"Every time I make a business trip to the U.S., I am reminded how terrible connections are there," Son told the Wall Street Journal. "The U.S. has one of the world's highest mobile fees."
T-Mobile is on the right track
T-Mobile added more than 1.6 million customers in the fourth quarter of 2013 and a total of 4.4 million for the year. Sprint only added 682,000 new subscribers in the fourth quarter and lost subscribers in two of the three previous quarters (finishing the year up slightly).
With its bold CEO who talks tough and commercials that clearly take aim at the big boys, T-Mobile has found a winning strategy to claw its way forward in the increasingly competitive mobile space. By acting like he deserves a seat at the grownups' table, Legere has baited his competitors to lower prices, change plans, and generally acknowledge T-Mobile as a player.
That may not lead to a Legere movie, a book deal, or a funeral for AT&T or Verizon, but it should keep T-Mobile growing.
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The article How T-Mobile Plans to Attack AT&T and Verizon originally appeared on Fool.com.Daniel Kline has no position in any stocks mentioned. He has been a Sprint subscriber since 1998. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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