T-Mobile’s New Strategy Could Be a Winner

What will T-Mobile do if the merger with AT&T does not work out? On the outside, both AT&T and T-Mobile are pushing as hard as they can to get the deal done. However, behind the scenes, T-Mobile is working even harder on the path it will take in the event the deal does not get done. And it may have hit on something.

My Pick of the Week is how both Google and Microsoft are battling over the remains of Yahoo. Which will win — and what will happen next?

Changing Landscape

Over the last several years, AT&T and Verizon have been growing much faster than the others. Sprint Nextel and T-Mobile are losing postpaid customers to them. This can be good or bad, depending on which side you are on. AT&T and Verizon workers and investors are obviously happy, but at Sprint and T-Mobile — not so much.

Sprint has been trying to reinvent itself by focusing on more than just postpaid. It’s been focusing on prepaid, wholesale and other not-so-typical offerings, and that path looks successful so far.

T-Mobile has been struggling. That’s why this deal with AT&T looked like such a good deal for it — just not for the industry. It all started several years back with the industry-wide move to smartphones and wireless data. AT&T led that charge. Now everyone realizes that is the path to be on.

T-Mobile snoozed its way through the industry shift from 2G to 3G. It had focused on a more basic service and attracted a more basic customer who used voice and text.

It was doing well, gaining customers; however, the shift to wireless data was just too much for it. The company started losing business.

T-Mobile finally realized this change was happening, so it jumped in as fast as it could, but it was behind the eight ball. When it shifted its focus to the wireless data area, it started winning customers again. Things looked brighter for the company.

It realized it could not catch up to the reality of 3G and the lead of its larger competitors. So what did T-Mobile do? It changed the rules of the game. It was the first to claim 4G. What? How? It was behind the rest of the pack on 3G. How could it be ahead?

T-Mobile came up with a brilliant marketing, advertising and public relations strategy, and it worked early on. It was winning again. It upgraded selected portions of its network. The problem was that most of its network was not ahead of the competition.

When the marketplace caught on, it started to lose business again. The ups and downs were like a roller coaster ride at an amusement park. That was T-Mobile’s world.

That’s why AT&T’s merger lifeline made so much sense for the company — just not for the industry.

In blocking the merger, the U.S. government said T-Mobile was too important a competitor to lose. It said the marketplace had seen many mergers in the last decade, but this one crossed the line and was not good for the industry. At some point, mergers become anticompetitive.

That brings us to today. If this acquisition does not occur, what is the next step for T-Mobile? What is its strategy?

Golden Opportunity

It looks like T-Mobile is now starting to enter the same space as Sprint Nextel. Its leaders figure if they have lemons, make lemonade. This strategy seems to be working for Sprint, so it could work for T-Mobile as well.

The cheaper, no-contract and prepaid side of the wireless market looks juicy. It’s a lower-cost area for subscribers, but it is the fastest-growing segment of the industry. As prepaid carriers offer better phones and more robust wireless data experience at a lower cost, they are attracting lots of new users.

“This is a really strong, very, very, high-growth business for us in all key areas, both on customer growth and on revenue,” Mike Katz, VP of marketing for T-Mobile and head of the company’s prepaid group, told The Wall Street Journal.

This is the same space occupied by MetroPCS, Leap Wireless, Cricket, Tracfone and other prepaid services. This is a segment the wireless industry never really paid much attention to; however, even though it is just a tiny slice of the marketplace, it is growing rapidly.

T-Mobile just introduced a lower-cost plan, available at Walmart, that undercuts the competition in this segment. This is a great start. The plan allows plenty of time for Web surfing, along with unlimited texting, but only 100 minutes of prepaid talk.

It offers T-Mobile’s fast wireless data service, which many smaller competitors do not yet have. This first step into this new market segment seems to make a lot of sense for the company.

This suggests another shift for T-Mobile, but this one may be right on target. This could finally be the start of something good at T-Mobile. We’ll have to keep our eyes on it and see what happens next. This kind of move proves the government right. T-Mobile is an important part of the competitive mix.

This is not a shift the company wanted to make. It was a consequence of losing traditional customers to larger competitors. However, as the gulf expands between the two or three largest providers and everyone else, there is real opportunity.

As an analyst and consultant, I have worked with AT&T, Verizon and Sprint off and on over the years, and I’ve have seen many good and bad ideas. I can honestly say that this move by T-Mobile is a great idea — if it can make it happen, that is.

The choice is simple. T-Mobile can continue to compete in Tier 1 against Verizon, AT&T and Sprint and continue to lose. Or it can shift and start to compete in Tier 2 against all the rest. If it does, it can be No. 1 in that segment. on wireless, but what about the huge Web search opportunity? The place where Google is such a big winner?

Microsoft had its eyes on Yahoo several years ago. It wanted to acquire the company back then and was willing to pay a pretty penny. Yahoo said no. Microsoft backed away.

Since then, things have gotten better and worse. The bad part is Yahoo has lost customers, and its market value has dropped. The good part is it will be even less expensive to acquire.

So what will be the difference between an acquisition by Microsoft or Google?

In short, Microsoft wants to punch and Google wants to block.

Microsoft wants to use Yahoo to better compete with Google. As a self-defense move, Google wants to take away Microsoft’s ability to do that.

So if Microsoft wins, it will try to build up Yahoo and partner with its own brand to successfully compete in the search space. If Google wins, I think we will see Yahoo disappear.

Google is so successful right now it cannot be interested in Yahoo for any reason other than to try to block Microsoft from using it to more effectively compete.

It will be interesting to watch this unfold over the next several months.

Jeff Kagan

E-Commerce Times columnist Jeff Kagan is a tech analyst and consultant who enjoys sharing his colorful perspectives on the changing industry he's been watching for 25 years. Email him at [email protected].

1 Comment

  • It’s long been entertaining how Tracfone’s new additions alone, have boosted the reseller columns of especially AT&T. The trend of switching to prepaid isn’t a new thing, the extent of influence has merely been hidden in the new additions the big carriers ascribe to being wholesale. In the case of an MVNO that doesn’t have it’s own network infrastructure, these prepaid sales will go beneath the radar for as long as carriers sell more profitable post paying contracts.

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