T-Mobile Closing Subscriber Gap With Sprint Nextel
Slow and steady could win the race for No. 3 in wireless. No. 4 U.S. carrier T-Mobile may have only half the number of wireless subscribers No. 3 Sprint Nextel does, but in each of the last four quarters it has posted better net add results. Sprint has 54 million wireless subscribers; T- Mobile, 27 million. But in recently reported Q2 2007 results, T-Mobile’s 857,000 net adds were more than double Sprint’s 400,000. That gap arise from Sprint’s inferior network technology and its continuing struggle to keep Nextel customers, analysts said. And HotSpot@Home and other new service offerings may keep T-Mobile ahead even as Sprint closes the gap with network upgrades and dual-mode phones, they said.
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Compared with Sprint’s decline the past four quarters, T-Mobile has maintained consistent momentum. Until Q3 2006, Sprint Nextel beat T-Mobile in net adds four quarters running, but T-Mobile results were still competitive. For example, in Q4 2005, Sprint’s best quarter for net adds since the Nextel merger, that carrier added 2 million; T-Mobile kept pace with 1.4 million. However, in all but one of the last eight quarters T-Mobile added more than 800,000, but Sprint hasn’t done so since Q1 2006, its third quarter as a combined company.
Sprint’s merger with Nextel, its network technology and a stringent credit check system have hurt net adds in recent quarters, analysts said. The merger gave Sprint two networks: Sprint’s is CDMA; Nextel’s, iDEN-based. Since the merger, the carrier has lost many Nextel iDEN network customers, and its churn rate among Nextel users is very high, GimmeCredit’s Dave Novosel said. And Sprint’s network technology puts the carrier at a disadvantage, Think-Equity analyst Anton Wahlman said in an interview. Sprint and other CDMA carriers have a “deeply inferior” selection of handsets, he said, calling the iDEN network “Stone Age.” Thanks to its historically less rigorous credit policy, Sprint “added a lot of sub-prime customers” before a systemwide Q3 2006 tightening, Novosel said. That could account partially for the drop from 708,000 to 233,000 net adds from Q2 to Q3 2006, he said.
A reputation for good service may be helping T-Mobile post consistent net adds. In Q2 T-Mobile won its sixth consecutive J.D. Power and Associates’ wireless customer care award. And T-Mobile is known for solid management and a useful Web site, Wahlman said. T-Mobile’s Q2 contract churn was 1.8 percent; Sprint’s, 2 percent. New offerings could boost T-Mobile net adds. T-Mobile’s myFaves, which gives customers unlimited free minutes to five people from any carrier network, and HotSpot@Home, which lets phones connect to Wi-Fi networks for voice, drove net adds in the second quarter, T-Mobile USA CEO Robert Dotson said in the company Q2 report.
Sprint should shrink the net add gap, but isn’t likely to beat T-Mobile in that category for at least two quarters, Novosel said. Sprint is stanching customer losses with network upgrades and dual-mode phones running on both its CDMA and Nextel iDEN networks, he said. It’s also trying to improve customer service and retention, he said. But T- Mobile should maintain its net adds number, perhaps even increasing it if its HotSpot@Home Wi-Fi service takes off, as some expect.
HotSpot@Home, launched late June, had no impact on Q2 results, but long term should bring T-Mobile more net adds as more Wi-Fi handsets become available and consumers complete current contracts, Wahlman said. HotSpot@Home supports two cellphone models. Sept. 24 launch of a Wi-Fi Blackberry should boost sales if, as expected, it works with HotSpot@Home, he said. A T-Mobile spokeswoman didn’t comment on the Blackberry’s availability.
Wi-Fi for voice has seen success in Europe, where since October 2006 wireless operator Orange has signed 300,000 for Unique, a service similar to HotSpot@Home, Wahlman said. HotSpot@Home and Unique have appeal because cellphones connected to Wi-Fi don’t eat up network minutes, he said. And users connected to Wi-Fi outside their GSM networks are not charged for international roaming, he said. The main hurdle for HotSpot@Home users will be accessing Wi-Fi outside the home, because access points can be encrypted or only limited to browser-based login, he said. But T-Mobile has an extensive hotspot network with which its Wi-Fi phones work automatically, he said. T-Mobile has hotspots in Starbucks locations around the world and a “huge chunk” of the hotel and airport hotspot markets, he added.
T-Mobile could make further inroads against Sprint and other rivals by releasing a VoIP-capable HotSpot@Home router. Recent reports suggest that T-Mobile has filed with the FCC to test such a device, Wahlman said. The wireless router reportedly has two GSM SIM card ports for connecting landline-style phones to VoIP service. Selling the router would be a brilliant, “no-brainer” move for T-Mobile, said Wahlman. “Not going down that road would be money left on the table,” he said. The router could launch Sept. 24 alongside the Wi-Fi Blackberry, he added. A T-Mobile spokeswoman didn’t comment.
AT&T and Verizon look to stay on top of the wireless net add game. In Q2 2007 the companies added 1.5 million and 1.3 million, respectively. AT&T leads U.S. carriers with 63.7 million wireless customers, closely followed by Verizon Wireless’ 62.1 million.