iPhone Steals T-Mobile Customers

T-Mobile USA has experienced a mass exodus over the last two years as customers have defected to the carrier’s three biggest competitors — Verizon (NYSE:VZ), AT&T (NYSE:T), and Sprint (NYSE:S) — all of which now have the iPhone. T-Mobile, the country’s fourth-largest wireless carrier, is now the only nationwide carrier that does not offer the country’s most popular smartphone.

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T-Mobile said on Thursday that it lost a net 526,000 subscribers just in the fourth quarter, but lost a net 802,000 subscribers on contract-based plans, which are the most lucrative. Such figures were until now unheard of in an industry that has been characterized by rapid growth for more than a decade. The company, a subsidiary of Germany’s Deutsche Telekom AG, is now losing subscribers from contract-based plans faster than regular phone companies are losing landline customers.

Sprint Nextel Corp., the nation’s third-largest wireless carrier, began selling the iPhone in October 2011, joining Verizon Wireless and AT&T in what remains a rather exclusive club. At the same time, Apple (NASDAQ:AAPL) launched the iPhone 4S, which propelled iPhone activations in the U.S. to a record 13.7 million in the course of three months.

The iPhone helped Sprint post a rare increase in contract-based subscribers, while both Verizon and AT&T posted increases as well. Given T-Mobile subscription numbers for the most recent quarter, it seems clear that many of those new subscribers were coming from the nation’s fourth-largest carrier.

On Thursday, T-mobile CEO Philipp Humm promised that the company would get back into the game through network upgrades. After regulators blocked a $39 billion buyout offer, AT&T was forced to pay the company a break-up fee of $3 billion in cash and some spectrum licenses, giving T-Mobile some room to maneuver. T-Mobile will start building a network using the new Long Term Evolution, or LTE, wireless standard, which allows for higher data speeds. Neville Ray, the company’s chief technology officer, said LTE will be operational next year.

T-Mobile is investing $4 billion in the network upgrade, $1.4 billion more than planned. AT&T and Verizon already have LTE networks up and running, and Sprint has said it plans to set up its own network this year. However, the network revamp will at least harmonize T-Mobile’s network with those of AT&T, Verizon, and international carriers. It will start providing high-speed wireless data in a band it has previously used mainly for calls, a band that is compatible with many smartphones from other carriers.

T-mobile has in the past been disadvantaged by the fact that its first high-speed wireless network operated on a radio band that wasn’t used by other carriers for that purpose, which meant phones had to be made specially for T-Mobile’s network. The new band means people with some phones, including the iPhone 4S, could move over to T-Mobile once their contracts expire, or if they break their contracts.

CEO Philipp Humm has also said that T-Mobile would like to sell the iPhone itself, under the right terms. Though the phone is much more expensive than most other smartphones, phone companies swallow that price increase to be able to sell it to their customers for $99 or $199 in exchange for a two-year contract that must include an expensive data plan.

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To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com