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T-Mobile Announces iPhone, Value Plan Deals

December 6, 2012

T-Mobile CEO with iPhone

"You love your iPhone. You hate AT&T."

That's what we'll be hearing from T-Mobile in 2013 as the carrier gears up to sell Apple products, T-Mobile USA CEO John Legere said at parent company Deutsche Telekom's Capital Markets day in Bonn, Germany today.

"We are going to launch Apple products and we're going to do it in a very innovative way," he said. "When we do announce what we're going to deploy, it will clearly be better and more effective than any of the geniuses [in the press] writing in the past few days," he said.

Legere didn't reveal which Apple products T-Mobile would sell, but at one point took what appeared to be an iPhone 4S out of his pocket (shown at left) and said, "we are going to get devices into the market, including this one, at a price that beats the rest of the industry."

As the last major U.S. carrier without the iPhone, T-Mobile was losing customers, Legere said.

"It was very clear that a certain number of customers wouldn't come to the store if we didn't have the iPhone. There was a definite churn impact," he said.

Legere even gave a hint about pricing, using T-Mobile's Value Plan strategy of paying some money down, paying for the rest of the phone's value in an installment plan, and paying less for your service because it's not bundling in a subsidized phone.

"You may pay $99 for the most iconic device in the world, and then you may get 20 months worth of, call it $15-20 a month [on the device installment plan]. It's very cheap out of pocket, very low. And at any point if you want to come back and trade in that phone, we will give you residual value, let you trade in that phone and stay on the contract service you have."

Now notice he didn't name the phone in that previous quote, and the first sentence had "may" in it rather than "will." Plausible deniability.

Carrier execs didn't confirm exactly when they'd start selling the Apple phones other than saying it will be next year. But when it does, T-Mobile will "aggressively target AT&T" rather than other iPhone carriers, Legere said.

Value Plans Mean Cheaper iPhones
T-Mobile also announced a major shift in its service plan strategy: in 2013, the company will go to 100 percent "Value Plans."

Value Plans are less expensive service plans that don't bake in the price of a subsidized phone. They're not prepaid; they're still two-year contracts. You can pay for your phone in full up front, or over 20 monthly installments. If you want to upgrade before your phone is fully paid off, you get a trade-in value towards a new unit. T-Mobile is currently the only one of the big four carriers that truly unbundles phones and service like this.

Value Plans are much cheaper for T-Mobile because the carrier doesn't pay device subsidies, and they tend to be cheaper for customers over two years, too. Value Plan customers stay with T-Mobile on average two months longer than traditional contract customers, with the average Value customer paying $600 over their total time with T-Mobile, $100 more than traditional plan customers do, Legere said.

Four out of five customers in T-Mobile stores are already picking Value Plans, Legere said. Between 12 and 15 percent are bringing their own phones and not buying one from T-Mobile at all, including 1.7 million iPhones, he said.

Among other things, this strategy makes it easier for T-Mobile to make money on iPhones than it was for Sprint. Sprint, famously, pre-purchased $15.5 billion worth of iPhones and committeed subsidies to them, which means Sprint won't turn a profit on the phones from 2011 all the way until 2015.

T-Mobile, on the other hand, will turn a profit on its iPhones by the end of their first year of sale. The trick is those Value Plans, which don't have the up-front device subsidies of traditional contracts.

"We worked very, very hard for a deal that made sense to us … the deal is accretive to cash flow and EBITDA in 2014," he said. "This is not a volume commitment the size of what Sprint agreed to or anything close to it."

Speedy, Sped-Up LTE
Legere also announced that T-Mobile is speeding up its planned deployment of 4G LTE. T-Mobile LTE will now cover 100 million people by the end of June 2013 and 200 million by the end of the year, he said. The CEO said he's seen speeds of 45 megabits down and 25 megabits up.

The LTE rollout in part depends on T-Mobile's merger with MetroPCS, and execs spent some time explaining how that's going.

"We are closing this deal and we are way down the path," Legere said, on stage with MetroPCS's CFO Braxton Carter.

While MetroPCS's CDMA network will be shut down by the end of 2015 - T-Mobile is turning off 10,000 of MetroPCS's 11,000 cell sites - the brand will continue, and T-Mobile will migrate customers to less expensive and more capable GSM/HSPA+ phones, Legere said.

Even on older CDMA/LTE phones, MetroPCS customers will see coverage improvements by latching onto T-Mobile's compatible LTE network, Legere said.

"On day one MetroPCS customers are going to go onto [T-Mobile's new LTE] network, and their coverage expands," he said.

MetroPCS services will come to at least three more cities in 2013, Carter said, naming Seattle, Minneapolis and New Orleans, and the brand may eventually cover 100 million more people, he said.

iPhone owners will see fast speeds on T-Mobile's 1900MHz HSPA+ network, which is spreading quickly, T-Mobile CTO Neville Ray said. He announced that Seattle, Minneapolis and Atlanta were now iPhone-compatible.

No Longer "Dejected"
Legere also addressed T-Mobile's drop in customer service quality from 2010 on, blaming it first on corporate policies that took flexibility away from front-line employees, and then on the AT&T merger, the prospect of which left T-Mobile's 40,000-plus employees "dejected."

With AT&T's payment of a $3 billion "break-up fee" to T-Mobile,  a spectrum deal with Verizon, the MetroPCS merger and now the iPhone, employees are "jumping out of their chairs … we've got a very excited, invigorated team," he said.

The company will fight to get back to number one in JD Power's assessment of wireless customer service, an award it held until 2009, Legere said.

"My number-one focus as the CEO has been on [customer] care," he said. "I listen to an hour's worth of customer calls each day."




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