Home ReadWriteWeb DeathWatch: T-Mobile USA

ReadWriteWeb DeathWatch: T-Mobile USA

The dresses in the commercials may be magenta, but the ink on the balance sheets is red. T-Mobile USA continues to slip behind its rivals. Can the rebel mobile carrier find a new CEO to bring it back to prominence before Deutsche Telekom hangs up?

The Basics

T-Mobile USA (a subsidiary of the German giant Deutsche Telekom) is the fourth-largest mobile carrier in the United States. It’s also one of the country’s most recognizable brands, thanks to a marketing push featuring model Carly Foulkes, a five-note jingle and liberal use of garish neon colors. For years, the scrappy company built a growing business on cheap minutes, cool phones and a network that was fast, if spotty.

Recent years have been tough. Deutsche Telekom’s 2011 bid to unload the company on AT&T was shut down by the feds, stoking customer uncertainty. After 10 consecutive quarters bleeding “branded contract customers” (the most valuable “post-paid” users), T-Mobile tried to spin another half million defections as a positive, since the losses were “our lowest level in seven quarters.” During the same quarter, Sprint (239,000), Verizon (501,000) and AT&T (187,000) all added contract customers. With the big two consolidating their lead, Sprint pulling away in the number three spot, and a hard Autumn ahead (more on that later), T-Mobile is foundering.

The Problem

The bungled AT&T deal left T-Mobile behind the curve, and now it’s playing catchup. Here are the four biggest reasons for its troubles:

1. Europe. Since it’s owned by Deutsche Telekom, T-Mobile is far more exposed to European unrest than other U.S. carriers. With revenue declining in Europe and more market turmoil on the way, T-Mobile may not get the network upgrades it so desperately needs. Deutsche Telekom has long made it clear that it would love to exit the U.S. market, though it has backed off on that goal since the failed sale.

2. The iPhone. According to the latest numbers from Nielsen, iPhones account for more than a third of all smartphones in use, and T-Mobile is the only major U.S. vendor that can’t sell them. iPhone envy has driven hundreds of thousands of T-Mobile users to other networks, and with the iPhone 5 expected this Fall, the bleeding is about to get much, much worse.

3. The Technology. Beyond phone selection, T-Mobile is being pressed on technology. Like AT&T, T-Mobile made the dubious assertion that its HSPA+ network (considered firmly 3G by many) was fourth-generation technology, claiming to be “the nation’s larger 4G network” as a result. Now that it is eyeing a move to a faster 4G LTE network in 2013, T-Mobile has finally dropped the claim from its marketing. The truth of the matter is that T-Mobile will be the last major American carrier to move to LTE, and that will likely cost it more subscribers.

4. The Legacy. T-Mobile can change its spokesmodel’s outfit, quote cherry-picked speed tests, and give away free phones that won’t be compatible with next year’s upgrade, but to many Americans, T-Mobile is still a budget carrier with a budget network.

The Players

On June 27, T-Mobile USA CEO Philipp Humm resigned. The official press release cited a desire to “reunite with his family,” but many observers believe that Humm, who was a Deutsche Telekom insider before moving to T-Mobile, was there to sell the company. When the deal fell through, it was time for Humm to go.

According to Deutsche Telekom CEO René Obermann, T-Mobile needs “somebody who can convert initiatives into market-successes.” Humm’s interim replacement, COO Jim Alling, is not that man. Alling, whose LinkedIn profile does not even mention his new role, will bring stability during the transition, but T-Mobile is still searching for its new closer.

The Prognosis

Barring something crazy, like a merger with Sprint, T-Mobile won’t ever challenge AT&T and Verizon for contract users, where the money is, and Sprint is probably out of reach, too. Increasing reliance on prepaid plans will likely hurt profits. The promise of an LTE network and an iPhone in 2013 sounds like too little too late.

Can This Company Be Saved?

T-Mobile’s biggest enemy is time, with finances a close second. If Deutsche Telekom really does invest as planned in T-Mobile’s infrastructure, it could complement new spectrum acquisitions from AT&T and Verizon. With an iPhone, a new network, a rebranding and a strong push into the enterprise, T-Mobile has a shot at returning to growth. Making all that happen will require a strong leader with vision, experience and connections, and the clock is already ticking.

The Deathwatch So Far

Research In Motion: Things are hurtling downhill even faster than expected. Massive losses – more than 11 times worse than expected – and new delays in its Hail Mary BlackBerry 10 operating system update have made the company’s dire situation even harder to ignore. And over the weekend, a federal jury found RIM liable for $147 million in patent damages to Mformation Technologies.

HP: No change in status

Nokia: The mobile phone giant’s quarterly revenue and earnings exceeded expectations and it has reduced its cash burn rate, but the company lost money yet again and saw its debt ratings cut to junk status. And it still hasn’t cracked the U.S. smartphone market as it halves the retail price of its flagship Lumia 900 to $49.99.

38 Studios: No change in status

Barnes & Noble: No change in status

Sony: No change in status

Groupon: No change in status

Philipp Humm photo by LGEPR on Flickr.

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The ReadWrite Editorial policy involves closely monitoring the tech industry for major developments, new product launches, AI breakthroughs, video game releases and other newsworthy events. Editors assign relevant stories to staff writers or freelance contributors with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

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