Bernstein Research senior analyst Craig Moffett is predicting that T-Mobile may soon suffer the same fate as Sprint: seeing its subscriber growth siphoned off by mega-carriers Verizon Wireless and AT&T Mobility. T-Mobile’s Q4 subscriber numbers last week weren’t encouraging, and Moffett isn’t exactly expecting a big turnaround any time soon. According to Moffett, T-Mobile, like Sprint, is now suffering from the problems of middle:
“Recent reports from the major wireless providers in the U.S. make clear two trends: First, industry-wide subscriber growth is slowing sharply, a consequence of secular pressures from approaching saturation, and cyclical stresses from a weakening economy. Second, the market is bifurcating, with what growth remains increasingly concentrated at the high end and the low end. The middle is being hollowed out. Sprint and now, increasingly, T-Mobile USA as well–the two players who collectively define the middle market–look particularly disadvantaged. Weak Fourth Quarter results already reported by T-Mobile USA suggest that trends there are already deteriorating. We believe T-Mobile could soon join Sprint as a “share donor” to the both the high and low ends of the market.”
Moffett doesn’t see too many quick outs for T-Mobile either. It’s 3G data network isn’t robust enough yet for it to refocus on the high-end, Moffett said, and it’s a little late now for T-Mobile to start going after enterprises. Moving toward the low end is also problematic, Moffett added, since T-Mobile doesn’t have the cost stucture to allow it to compete with the super-cheap service providers.
That’s a pretty grim picture, but T-Mobile may still have some tricks up its sleeve. Though T-Mobile was a bit cloudy on the details, its subscriber breakdown last week strongly implied that its growth numbers would have been a lot worse if it weren’t for the new 3G network. 20% of the new phones sold that quarter to existing or new customers were 3G smartphones like its new G1 Android phone. Those are new customers that probably would have gone to AT&T to buy an iPhone, or existing customers that would have churned to do the same. Smartphones appear to be one of the few areas where there is growth these days.
The G1 hasn’t exactly been the barn-burner that the iPhone has become, and I doubt that Google-powered phone will ever have the cache of an Apple device. But Android is still in its infancy. As more operators launch devices and more devices appear, it could gain momentum. It’s also important to note that T-Mobile only sold the G1 and other 3G phones in the 25 major markets it has its HSPA network built. As that footprint grows T-Mobile will have a much larger addressable market for the G1 and whatever other converged devices it can lay its hands on.
Of course, having a powerful 3G network doesn’t guarantee success–just ask Sprint. I wouldn’t rule out T-Mobile’s creativity though, or at least its ability to recognize creativity. It jumped all over the Alltel’s My Circle plan when it was first launched, spawning My Faves, which drove a lot of customers its way two years ago. Earlier this week, it was the first operator to launch Motorola’s 100% recyclable Renew phone. If you hadn’t noticed, being Green is rather in vogue these days. Android and phones made of old water bottles may not be enough prevent T-Mobile from meeting Sprint’s fate, but they’re a start.