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T-Mobile Investing $4 Billion into LTE Network

T-Mobile Investing $4 Billion into LTE Network
February 23, 2012 11:08AM

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"T-Mobile is trying to make up for lost ground," said telecom analyst Jeff Kagan. "If you look at the top national carriers, AT&T and Verizon and Sprint have been rapidly building and growing their high-speed data networks. T-Mobile hasn't. T-Mobile was sitting out this network phenomenon that we've watched occur since the iPhone came out."

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The day after Verizon Wireless posted another LTE network disruption, T-Mobile announced plans to invest $4 billion in its own 4G network. T-Mobile plans to launch a high-speed LTE network in 2013 in hopes of stopping a near-mass exodus of customers to competing carriers.

T-Mobile calls it its "challenger strategy," and plans include deploying advanced hardware at 37,000 cellular sites. T-Mobile said it would tap into the wireless spectrum band AT&T is offering as part of their merger-kill agreement, if the Federal Communications Commission approves the transfer.

"Though we are not satisfied with the contract customer losses and the decreased total revenues, the quarterly margin improvement year-on-year was impressive," said Rene Obermann, CEO of Deutsche Telekom, T-Mobile's parent company. "The spectrum gained through the break-up fee empowers T-Mobile USA to start LTE-based services in key U.S. markets and strengthens its competitiveness."

Blaming iPhone 4S

T-Mobile has to do something. Deutsche Telekom was betting heavily on the AT&T merger to pan out as the carrier continued to bleed market share -- and the bleeding hasn't stopped. T-Mobile lost 802,000 customers in the fourth quarter of 2011. That compares with a loss of 251,000 in the year-ago period.

The churn affected T-Mobile's revenues, albeit only slightly. T-Mobile posted $5.2 billion in fourth quarter 2011 revenues, compared with $5.4 billion in the year-ago period. On the year, total sales dipped 3.3 percent year-over-year to $20.6 billion.

T-Mobile pointed to negative impacts in the fourth quarter from the iPhone 4S launch at AT&T, Verizon Wireless and Sprint. As the only major U.S. carrier without an iPhone in play, T-Mobile is an underdog in the smartphone wars.

"Not carrying the iPhone led to a significant increase in contract deactivations in the fourth quarter of 2011," said Philipp Humm, CEO and president of T-Mobile USA. "In 2012 and 2013, T-Mobile USA will invest to get the business back to growth, including an incremental $1.4 billion investment in its network modernization initiative, which will total a $4 billion investment over time."

Making Up for Lost Ground

Jeff Kagan, a telecom analyst in Atlanta, is not surprised by the customer bleeding or the $4 billion investment. Many analysts expected T-Mobile to make a big move with the multibillion-dollar break-up fee it received from AT&T.

"T-Mobile is trying to make up for lost ground," Kagan said. "If you look at the top national carriers, AT&T and Verizon and Sprint have been rapidly building and growing their high-speed data networks. T-Mobile hasn't. T-Mobile was sitting out this network phenomenon that we've watched occur since the iPhone came out."

Kagan's research shows that the market for wireless data has crossed over the 50 percent line. In other words, well over 50 percent of wireless network usage is wireless data. Over the next three years, he predicted, the wireless data side of the network is going to account for 97 percent of the traffic, leaving only 3 percent as voice.

"We are in the middle of a major transformation, and in the beginning T-Mobile didn't think this was real," Kagan said. "T-Mobile thought it was going to be over. Now they are spending billions of dollars trying to improve their network, which is what they should do. T-Mobile could transform themselves from being in the shadows to being a major player in this space over the next year or two or three."

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