Thomas

Feisty T-Mobile is back on the attack, this time against Verizon’s new “Share Everything” plans which T-Mobile’s marketing gurus are calling a lousy deal for consumers.

Harry Thomas, director of segment marketing, dismissed Verizon’s new plans as costly, complicated, and punitive in a company blog post:

• They’re COSTLY – Verizon is charging more for what consumers want by raising rates on data, but promoting the “value” by pointing to unlimited talk and text even though today many consumers use less of these services. This is especially true for add-a-lines – now with Verizon’s Share Everything plans, adding a line starts at $30/month for a basic phone (non-smartphone) and, for accounts with at least one smartphone, requires unlimited minutes whether customers want unlimited or not.

• They’re COMPLICATED – Verizon is forcing customers to share data when many customers don’t know how much data they’re using, which makes it hard to stay within their limit when trying to balance multiple users (not to mention the family data hog).

• They’re PUNITIVE – At the same time that Verizon is making it harder for customers to manage overages, they are also increasing overage rates from $10/GB to $15/GB for accounts with at least one smartphone.

Thomas predicted Verizon’s new plans would deliver more benefits to Verizon’s bottom line than to consumers, and as they took effect late last week, he’s now convinced he was correct.

T-Mobile released this graphic showing its plans offer considerable savings over Verizon Wireless’ new “Share Everything” plans. Verizon is probably wishing AT&T managed to get that T-Mobile merger through, if only to stop this kind of competition.

Humm

T-Mobile USA’s chief executive Philipp Humm is stepping down from his position to accept a job offer from a European wireless carrier.

In a letter to T-Mobile USA staff released Wednesday, company executives disclosed Humm was hoping to leave T-Mobile by the end of September to be with his family in Europe. But now Humm has accepted a position with an unnamed European competitor to T-Mobile and plans to leave immediately.

Chief operating officer Jim Alling assumes the CEO position temporarily at a time when T-Mobile is struggling to regain its identity after a failed merger attempt with AT&T. The company is spending aggressively to upgrade its network to stem subscriber losses numbering 1.65 million contract customers last year.

Humm earlier indicated he wanted to see T-Mobile shed its image of being the place for cheap phones and not-well-respected service. The company has plans to launch its own LTE 4G network and is competing to bring the latest handsets to customers. T-Mobile is positioned between Sprint’s unlimited data and AT&T/Verizon Wireless’ data allowances with steep overlimit fees. T-Mobile limits data use, but does not charge overlimit fees, preferring to throttle data speeds until the next billing date.

Despite perpetual claims of a wireless spectrum shortage, Verizon Wireless expects to have capacity to spare and has agreed to sell airwave licenses worth millions to T-Mobile USA if it can get federal regulators to approve a separate $3.6 billion acquisition of spectrum from some of America’s largest cable operators.

The deal will transfer surplus frequencies Verizon expects to acquire from its deal with Comcast, Time Warner Cable, Cox, and other cable companies in return for undisclosed compensation from the German-owned carrier. In return, T-Mobile will also turn over some of its spectrum to Verizon, most likely to give both companies a larger pool of contiguous spectrum.

The frequencies involved are expected to be in the Advanced Wireless Services (AWS) band (1700/2100MHz).

Wall Street analysts say the deal will remove T-Mobile from the list of concerns critical of Verizon Wireless’ deal with cable operators. It also may alleviate some criticism that Verizon is “hoarding” spectrum.

Won first place nationally for the best 4G LTE network with the fastest overall speeds and best performance.

PC Magazine went to a lot of effort to test the data speeds of America’s wireless providers, traveling to 30 U.S. cities sampling both 3G and 4G wireless networks to see which carrier delivers the most consistent and fastest results.

After 240,000 lines of test data, the magazine declared the results a bit “muddy.”

They have a point.

Depending on which carrier’s flavor of “4G” is being utilized, where reception was strongest, how much spectrum was available in each tested city, and how many people were sharing the cell tower at the time of each test, PC Magazine was able to deliver the definitive results. And it was effectively a draw.

Verizon Wireless achieved victory in 19 cities, AT&T won in ten others, and T-Mobile came in pretty close behind, and that carrier does not even operate an LTE 4G network. But taking all factors into account, including upload and download speeds, whether or not test downloads actually completed, and whether streamed media was tolerable, Verizon Wireless won first prize nationwide.

But by how much?

Not enough to matter, if you are using Verizon, AT&T, or T-Mobile.

But the results do offer some things to think about.

1. MetroPCS is a mess. Despite the fact this smaller carrier is building its own 4G LTE network, results were simply terrible. Either its backhaul network from cell towers offers lower capacity or its backbone network is screaming for an upgrade.
2. Cricket was not willing to participate in the test. Their network, still 3G, delivers dependably “meh” results in the places where they actually provide coverage. The company has been reducing data allowances on their mobile broadband plans and raising prices on others. In one conference call with investors, company executives admitted they have been losing mobile broadband customers and expect that to continue at the prices they are charging.
3. Sprint needs their forthcoming 4G LTE network more than ever. Their 3G data service turned in mediocre results and their 4G WiMAX network was yesterday’s news a year ago. Sprint’s 3G network is also notorious for dead-end downloads, a situation I have witnessed on friends’ phones for several months.
4. Verizon Wireless remains far ahead of AT&T in covering more cities with their 4G LTE network. But more customers are also starting to use Verizon’s newer network, and the more customers piling on, the slower the speeds get for everyone. AT&T turned in some superior speed results in several cities, but those networks are often used less than the competition, for now.
5. No network is good if you cannot afford to use it. As America’s wireless carriers keep raising prices and reducing usage allowances to keep data usage under control, there will be a breaking point where customers decide the money they spend for wireless data just is not worth it, especially if they live in a place where Wi-Fi is free and easy to find.
6. What you test today will probably be different tomorrow. Wireless networks are constantly evolving and changing, with a wide range of factors contributing to their overall performance. Perhaps a more useful test would have been measuring how wireless carriers respond when their networks need upgrading and how long it takes them to respond to changing usage patterns. Verizon seems particularly aggressive, AT&T less so based on these results. The real surprise seems to be how well T-Mobile’s older technology is performing, and how quickly Sprint is now falling behind. On Cricket and MetroPCS, “you get what you pay for” seems to apply.

Consolidation of the wireless industry into two or three mega-carriers is a dream come true… if you are one of those carriers (or Wall Street). But for everyone else, it’s a competition wasteland, where innovation and disruptive marketing wane into comfortable and predictable businesses where participants learn not to rock the boat. If they did, a lot of their accumulated money could fall overboard.

AT&T believes consolidation is already upon us, despite their setback in failing to acquire T-Mobile USA.

John Stephens, AT&T’s chief financial officer, tried to calm Wall Street’s fears that the government has signaled its intent to preserve robust competition.  At yesterday’s Nomura investment conference, Stephens said a reduction in the number of wireless companies in the United States is part of the natural order:

I think it is just logical that the industry is going to consolidate in some form or fashion. I think the marketplace has spoken to that with what it has done to pricing in the valuations on some of the companies. From an economic perspective and a highly CapEx-intensive business, I think it is logical to assume you’re going to have two or three and certainly not six and seven competitors in any marketplace. So I think consolidation is logical.

We’ve heard this argument before. It is commonly trotted out in opposition to community broadband initiatives when existing phone and cable companies fear a third player will ruin the market for everyone. AT&T joins the chorus with the same old excuses: the costs to build and run networks are too high for several players to comfortably compete. Consolidation reduces that pressure as customers are forced to choose among one or two providers, giving each a larger market share and healthier revenue to cover upgrades.

What companies like AT&T always obscure to their customers is the resulting pricing power, where price increases from one often lead to price increases from others. But Stephens has no trouble letting his investors know:

We are going to grow margins year-over-year. Last year’s margins were about 38.5% in wireless and our guidance says we are going to grow. I have said publicly, and some of my peers and coworkers have said publicly we expect we are going to have north of 40% margins this year in our wireless business and still believe that.

Margins = profits. In the absence of aggressive competition which forces companies to invest more in their networks, provide more value in their service offerings, or reduce pricing, increased profits are always the result.

Unfortunately, ZDNet’s editor in chief Larry Dignan seems to buy AT&T’s arguments and talking points, telling readers:

[…] It’s hard to argue against the idea. All industries boil down to two or three players eventually. The big question for wireless consolidation is timing. When will get to two or three carriers? And if so will this consolidation lead to price increases or will the mergers occur after wireless services is commoditized?

Stephens

It is actually very easy to argue against the idea, and the evidence is plainly visible if Dignan would take a look.

First, there is no evidence “all industries boil down to two or three players eventually.” Auto companies, banks, retailers of all kinds — even cell phone manufacturers all compete with more than just one or two other players in the market. A germinating monopoly or duopoly in any market is a signal federal regulators have failed to do the job assigned to them since the days of trust-busting railroads, oil, steel, and the securities business.

The drive to consolidation can be found first on Wall Street, where every industry is under pressure to cut costs, reduce profit-eroding competition, and return higher profits. The drumbeat for consolidation in the wireless industry starts there, is echoed in the executive offices of the cell phone companies themselves, and results in powerhouse deals that have picked off one competitor after another. That is why Cingular, Alltel, Cellular One, and Centennial Communications are no longer familiar names in wireless. They have all been swallowed nearly whole by AT&T or Verizon Wireless.

AT&T would argue that consolidation is a good thing, because through their willingness to sell, those companies indicated they wanted to exit the business. AT&T’s buyout of T-Mobile would have done everyone a favor because the company had lost interest in competing in the United States and wanted out.

The industry has held all of the cards of wireless consolidation until recently, primarily because supine regulators refused to provide a critical “check and balance” on industry pressure, accepting just about any premise to approve whatever wireless carriers wanted. Sure, a few companies had to divest certain assets, as Verizon Wireless did in certain Alltel markets. But AT&T ended up acquiring the majority of those divested territories. When AT&T bought Centennial Wireless, it had to divest a few markets in the southern United States. Verizon Wireless bought most of them. Customers were left in the middle, as always.

A remarkable thing happened when the federal government said no to AT&T over T-Mobile. Predictions of the smaller carrier’s imminent demise and its slow bleed to irrelevance has not happened. In fact, Deutsche Telekom picked its American asset up, shook the dust off, and is now investing in upgrades to keep the competition coming. At least $4 billion in improvements and some major network upgrades are on the way, and the company has even refreshed its marketing in a new, get-tough campaign against AT&T, Verizon Wireless, and Sprint. Now all three of those companies are watching to see what T-Mobile pulls next.

That is exactly the point.

The wireless world and Wall Street wants you to believe that consolidation is the only way the mobile phone marketplace of 2012 can work. Dignan has thrown in the towel, conceding they are likely right. But T-Mobile is proving they are exactly wrong. Instead of abandoning its asset, which DT still sees as valuable, it is investing in it to compete. Had the merger been approved, AT&T would never answer T-Mobile’s disruptive competition again. Rural America would still be waiting for better service. AT&T would have less pressure to keep prices down and upgrades up, and Wall Street would have turned its attention to the next targeted carrier ripe for the picking by AT&T or Verizon Wireless’ emerging duopoly.