T-Mobile is doing just fine by itself — for now, anyway

T-Mobile CFO Braxton Carter made headlines recently when he suggested merging with Sprint could make sense for both companies. A marriage of the third- and fourth-largest U.S. operators would be “the logical ultimate combination,” Carter said, creating a more competitive market than the “duopoly” (his word) dominated by AT&T and Verizon.

It’s true that the big two operators have long owned the space, of course, leaving the smaller tier-ones to vie with regional carriers and MVNOs for about one-third of the market. But any speculative talk of a merger comes at an odd time: Don’t look now, but T-Mobile is quietly gaining ground in a big way. Its move to drop handset subsidies in favor of upfront payments or installment plans is clearly paying dividends (even if that is a distinction without a difference), enabling it to differentiate itself from its bigger counterparts. And T-Mobile is well-positioned to continue that momentum through the holiday season and beyond.

The uncarrier is riding the iPhone to success

While overall mobile subscriber growth in the U.S. ground almost to a halt in the second quarter, T-Mobile’s “uncarrier” marketing strategy appears to be winning over subscribers – particularly those looking for an iPhone, which T-Mo started selling in April. It added 1.1 million new customers in the second quarter, including 685,000 lucrative postpaid users, with the iPhone accounting for 29 percent of all sales. And it reduced its churn rate while the overall industry rate remained flat.

Meanwhile, T-Mobile Chief Marketing Officer Mike Sievert told CNET recently that he believes the carrier enjoyed a record market share of all new postpaid subscribers in August. T-Mo didn’t fare so well during the launch weekend of the latest iPhone models – it claimed a mere 5 percent share of sales in those first few days – but I think it will get a particularly big boost from the iPhone 5C, which is a perfect fit for the mid-range smartphone customers that seem to be the carrier’s bread and butter. And its new Jump upgrade program is likely to help retain some users who want the latest and greatest smartphone available.

The long-term looks good, too

As my colleague Kevin Fitchard reported a few months ago, T-Mobile is moving hastily to close the LTE gap that was once a huge vulnerability. The carrier now offers LTE to 180 million potential users across 154 U.S. cities, and it’s reusing spectrum from MetroPCS’s old networks to boost capacity in the wake of that acquisition. It’s upgrading its network by shutting down some 2G portions and refarming that spectrum for HSPA+ mobile data. Also, as Fitchard reported in this scoop from June, it’s in the midst of a major build-out that will make its LTE network faster and more resilient. And like AT&T and Verizon, it is acquiring as much spectrum as it can lay its hands on to pave the way for growth as the internet of things begins to take off.

A handful of analysts have suggested that some important market trends are beginning to favor smaller carriers as opposed to AT&T and Verizon Wireless, and I generally agree. It’s worth noting that Sprint CEO Dan Hesse predicts his carrier will begin adding postpaid subscribers next year as it finally recovers from the shutdown of the Nextel network. But T-Mobile is demonstrating it has the marketing acumen to compete with the big boys again, and now it has the handsets and network to do so. I expect the nation’s fourth-largest carrier to have a very happy holiday season, and there’s no reason to think it can’t build on its momentum well into 2014 and beyond. A tie-up with Sprint may eventually be in the offing — although there would certainly be some regulatory hurdles to clear — but for now T-Mobile is just hitting its stride.

Relevant Analyst
Colin Gibbs

Colin Gibbs

Mobile Curator Gigaom Network

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