T-Mobile downplays iPhone's role in record customer gains

T-Mobile executives said the long-awaited iPhone helped boost subscriber growth in the second quarter of 2013. But it played only a small role in the overall success in attracting new customers and retaining old ones.

During its earnings call with investors and analysts, T-Mobile executives said the company sold 900,000 iPhones during the second quarter. This accounted for 29 percent of its gross customer additions. But executives were also quick to point out that the company saw strong demand for other popular devices, such as Samsung's Galaxy S4. During the second quarter, T-Mobile sold 600,000 of the GS4.

Overall, T-Mobile had an extraordinary quarter when it comes to customer growth. The company added a net 1.1 million customers in the second quarter, with 688,000 (685,000 coming from phone customers) coming from its post-paid consumers, or customers with a higher credit rating score who pay at the end of each month. That's the highest rate of growth among all of the national carriers this period. It added another 8.9 million customers from its acquisition of MetroPCS.

Some of T-Mobile's competitors have suggested that the company may have experienced a one-time gain of new customers, who had been waiting for the iPhone to come to the network. AT&T's Ralph de la Vega said during his company's earnings call that it has seen one-time blips in its own customer additions and gains by competitors when those rivals get the iPhone. But he explained it's usually a one-time anomaly.

T-Mobile CEO John Legere countered that argument and emphasized the company's success in the second quarter was no blip, and it was not solely attributed to the iPhone.

"The one-time pent-up demand for the iPhone is not the explanation for our second-quarter results," he said. "The iPhone 5 is a significant part of how we compete, and it will continue to be. But it's the combination of our brand and the 'Uncarrier Strategy' that made the impact."

The 'Uncarrier Strategy'
Indeed, T-Mobile has made a series of changes to its pricing plan and upgrade policy that it says are more customer-friendly. And executives believe this combination is what is helping drive strong customer growth and record low churn rates, or the rate at which existing customers are ditching service.

Earlier this year, the company introduced Simple Choice plans, which allow customers to sign up for lower-cost service plans and pay for their devices separately. The plans eliminate carrier contracts and device subsidies. The company also offers zero-interest device financing plans. And last month it introduced a new program that will allow customers financing their phones to upgrade those devices up to two times per year.

CEO Legere also hinted that the company is preparing to roll out another major program to shake up the industry in what he calls Phase 3 of the "Uncarrier Strategy."

Legere argued that the new simplified rate plans, plus the introduction of the iPhone, and its rapid network upgrade to 4G LTE are not only driving new customers to come to T-Mobile, but also helping the company retain existing ones.

"We are winning over the public," he said. "But it's clear that we are also winning over our base. You can see that reflected in the record low churn rate."

During the second quarter, T-Mobile reduced its churn rate by an entire percentage point compared with the same time a year ago. During the second quarter, churn was down to 1.58 percent for post-paid customers.

Legere and other company executives admitted it's difficult to predict whether churn will remain this low, due to seasonality in the wireless market. But they believe that T-Mobile's new plans and policies put it in a good position.

Stealing customers from AT&T and Sprint
Legere also revealed that since the introduction of the Simple Choice no-contract plan and a new promotion begun in July that allows customers to upgrade devices with no money down on a new device, it has seen many customers switching to T-Mobile from AT&T and Sprint.

A year ago, the porting ratio in the second quarter was around 0.41 for AT&T customers and 0.51 for Sprint customers, he said. This year, the ratios were 1.7 for AT&T and 1.6 for Sprint. And in July when the special no-money-down promotion began, Legere said the porting ratio was 2.04 for AT&T and 2.24 for Sprint.

Legere admitted he expects to see his competitors push back with their own programs to compete. But he said it will be difficult for them to respond since they all have gotten "a little fat and bureaucratic."

"Even though they don't want to admit it, AT&T is in full fight-back mode," he said. "The Leap Wireless acquisition is a way for AT&T to get more spectrum, but I think it's also a response to our purchase of MetroPCS."

Legere also said T-Mobile has no intention of bidding on Leap Wireless, a prepaid brand that AT&T has said it plans to buy for $1.2 billion. Instead, he said that the company will acquire those customers the old-fashioned way: through tough competition.

Legere also emphasized that T-Mobile is not done yet in terms of shaking up the industry. Not only is the company continuing to upgrade its network and combine spectrum from its acquisition of MetroPCS with its own to provide faster and better 4G LTE service, but the company is also preparing for its next phase of programs that will address other issues that current wireless customers are facing.

"Don't read into my comments that we are the little kids in the schoolyard waiting for the bully to beat us up," he said. "We still have a lot more to do."

"Our competitors have already had to respond to Phase 1 and Phase 2 and our network migration," he continued. "And soon they'll be responding to us on Phase 3, which will solve another customer pain point."