Source: Flickr user Mavis
T-Mobile USA posted its quarterly earnings last week, and the numbers weren’t pretty. The carrier saw a net loss of 99,000 subscribers as its net income fell to $135 million, down dramatically from $362 million during the first quarter of 2010. And while its 3.4 percent monthly churn was substantially higher than any of the other three tier-one operators, its average revenue per user (ARPU) of $45.82 is by far the lowest.
Those figures demonstrate why parent company Deutsche Telekom is hoping to spin off its U.S. service provider for $39 billion, though, as we’ve said before, everybody except AT&T and T-Mobile loses if federal regulators allow the deal to go through.
AT&T faces its first congressional hearings on the deal this week, and the acquisition must be approved by both the Federal Communications Commission and the Department of Justice. We believe that the feds will eventually give their blessing after extracting some major concessions from AT&T, but there’s always the chance the deal will be rejected on grounds that it is anti-competitive. If that happens, T-Mobile will continue to struggle in a no-man’s land between high-dollar service providers (AT&T and Verizon Wireless) and the cut-rate prepaid guys.
What would Deutsche Telekom’s optons be then? Here are a few ideas:
- Come up with a hit handset: This is easier said than done, of course. Apple is unlikely to offer up a T-Mobile iPhone anytime soon, and Verizon Wireless had to spend millions to get its Droid lineup of handsets off the ground. But T-Mobile already has some key pieces in place: Its customer service operations are top-notch, according to J.D. Power, and PC World recently found that the carrier delivers the fastest downlink data speeds for smartphones of the four major operators. That high-powered network is ideal for multimedia-centric devices like the Droid X, which rocks a vivid 4.3-inch screen and has the processing power to support cutting-edge video and games. If T-Mobile can team with a manufacturer to offer a must-have, exclusive handset that takes advantage of the carrier’s surprisingly speedy network — and then if it backs the device with a big-budget marketing campaign — it could close the gap with its bigger competitors.
- Submit to Google: Verizon Wireless and AT&T have kept Google at arm’s length, rightfully fearing that the Internet giant could position itself between the carrier and the customer. But Sprint has taken the opposite tack by fully embracing Google Voice, enabling users to call or text from Gmail and allowing them to use Google’s own voicemail system. It’s too early to say whether the move is paying dividends for Sprint, and there’s no doubt that submitting to Google is a distasteful option for operators who have long “owned” their subscribers. AT&T and Verizon Wireless don’t need to partner with Google any more than they already have, but for T-Mobile, embracing all of Google’s mobile offerings may still be the best choice.
- Find another buyer: This is the most likely scenario if the AT&T takeover fails, as there are at least several potential suitors for the nation’s fourth-largest carrier. A cable provider like Comcast or Time Warner could be interested (although both have ties to Clearwire and Sprint), and a merger with Sprint has long been rumored (although network incompatibilities make that tie-up a troublesome proposition). And satellite TV providers Dish Network and DirecTV could be interested in jumping into mobile in a big way via a merger, which would give them an opportunity to create bundled offerings of both TV service and mobile broadband.
- Double down in the U.S.: Deutsche Telekom has wanted to unload T-Mobile for years, but it might be tempted to invest more heavily in the U.S. market if it can’t sell to AT&T. For instance, it could round out its services for lower-end consumers by acquiring a prepaid service provider, or it could partner with Lightsquared to make the transition from HSPA+ to LTE.
It’s worth noting that rejection of the acquisition wouldn’t be entirely bad news for Deutsche Telekom. The operator would receive $3 billion in cash as well as some spectrum from AT&T if the effort fails, which would help considerably as it tries to compete with its bigger counterparts. The question, then, would be which strategy to follow to help it compete in market where AT&T and Verizon increasingly dominate.