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TechInvestors Guide

How T-Mobile’s Customer Focus Beat Rivals Yet Again

By
Aaron Pressman
Aaron Pressman
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By
Aaron Pressman
Aaron Pressman
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October 24, 2016, 11:03 AM ET
Inside A T-Mobile US Inc. Store Ahead Of Earnings Figures
An employee reacts as a shopper tests an Oculus Rift virtual reality (VR) headset at a T-Mobile US Inc. store in Chicago, Illinois, U.S., on Friday, Oct. 21, 2016. T-Mobile US Inc. is scheduled to release earnings figures on October 24. Photographer: Daniel Acker/Bloomberg via Getty ImagesDaniel Acker — Bloomberg via Getty Images

Over the last year, the wireless industry has seen Verizon buying up popular—if faded—Internet properties, AT&T making huge bets on video, and Sprint engaging in some of the savviest financial engineering moves ever seen just to manage its heavy debt load.

But what of T-Mobile? Under outspoken CEO John Legere, the third largest carrier hasn’t bought any cable, satellite, Internet, or smoke signal-based media companies. Instead, following Legere’s “Uncarrier” strategy, T-Mobile (TMUS) has simply focused on giving wireless customers more of what they want. That’s meant lower prices and features like free roaming and music streaming that doesn’t count against data caps.

As confirmed yet again in T-Mobile’s third quarter results released on Monday, the focus on customers is paying off. T-Mobile added 857,000 postpaid or regular monthly phone customers in the quarter, more than its three rivals combined. And it also added 684,000 of the less lucrative prepaid phone customers, again more than all three rivals combined for that category.

Sadly for Verizon, AT&T, and Sprint, the quarter was hardly an anomaly. As Legere crowed on Twitter (TWTR), his preferred means of communication, “ONLY @TMobile has taken share for 14 quarters in a row. #sorrynotsorry”

This quarter, T-Mobile benefitted specifically from a new, cheaper unlimited data plan that only Sprint (S) matched. Verizon (VZ) says it won’t go back to unlimited plans, while AT&T (T) offers a more expensive unlimited plan only to its DirecTV customers.

The arrival of the iPhone 7 (AAPL) late in the quarter also helped. T-Mobile was first to offer a free new iPhone via trade-in of an older model. Though all three other carriers matched the offer within days, analysts say T-Mobile’s strong brand benefits most when new iPhones deals get customers thinking about switching carriers.

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The big knock on T-Mobile’s aggressive efforts to woo customers has been that it wouldn’t be able to afford offering deals forever. But again the third quarter results showed otherwise. While other carriers showed little or no rise in wireless revenue, T-Mobile posted an 18% jump to $9.2 billion, more than analysts had expected. Adjusted earnings before interest, taxes, depreciation, and amortization also increased more than analysts expected. Shares of T-Mobile gained 7% on Monday.

Meanwhile, AT&T shares slumped 2% as investors fretted about its massive $109 billion proposed acquisition of Time Warner (TWX). Wall Street had mixed views on whether the deal would truly help AT&T, with particular concerns focused on regulatory and financial questions.

Verizon, which has made much more modest acquisitions, also appears to be addressing wireless weakness by turning its focus elsewhere. Buying AOL and Yahoo (YHOO) will add digital advertising revenue while a few smaller deals will help Verizon sell more smart, connected devices, such as car trackers.

Only Sprint has joined T-Mobile in adding at least some postpaid phone customers in recent quarters. CEO Marcelo Claure appears to have the carrier on the comeback after many years of flailing.

Legere continued to tweak his rivals on Twitter, but if there’s a lesson in the CEO’s hijinks, it may be a simple one: Focusing on what customers want tends to attract more customers.

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