Tech Industry

T-Mobile's iPhone off to a damp, but hopeful, start

The iPhone finally launches at T-Mobile, injecting a little energy into the smallest national carrier.

T-Mobile's flagship store in midtown Manhattan.
Roger Cheng/CNET

NEW YORK--There are bright summer mornings in midtown Manhattan when tech enthusiasts happily line the streets around the famous Apple "cube" on Fifth Avenue or sneak to nearby carrier stories to land a new iPhone or iPad.

This was not one of those days. It was gray and soggy outside T-Mobile's flagship store in midtown Manhattan this morning, a wet reminder that winter isn't quite over despite what the calendar says. Similarly, T-Mobile hasn't yet succeeded in attempts to move past its own dark season.

But T-Mobile, for once, had a reason to celebrate. Today marked the first time the carrier offered Apple's top-of-the-line phone in its stores. Along heavily trafficked 34th Street in Manhattan, just a block away from Herald Square and the Empire State Building, a dozen people stood in the cold rain in front of the T-Mobile store with minutes to go before the doors opened.

Chris Garron, building a case for mother of the year, made her way from Queens to the store an hour before it opened to buy her 30-year-old daughter and 25-year-old son each an iPhone 5.

"I wanted to make sure I would get the phone," she said. The 50-year-old stay-at-home mother's denim jacket and pink hoodie sweater underneath may not have been the best outfit for standing in the rain,

Garron walked in amid the usual applause of an Apple launch. But instead of the blue-shirted Apple employees, a T-Mobile staff adorned in pink Apple-approved T-shirts greeted her. On the front of each shirt: "iPhone. It's here."

To say T-Mobile is excited about carrying the iPhone would be making an understatement. For T-Mobile, the iPhone 5 isn't just another flagship phone; it's a gateway to the carrier's new way of thinking when it comes to its service plans and device costs. The iPhone launch builds upon its "Uncarrier" initiative, which involves abolishing service contracts and subsidies.

Executives concede that the change -- which notably requires consumers to pay full price for their smartphones -- will take time for customers to accept. But they're hoping that the iPhone and less expensive plans are enough to draw people into stores and start a conversation about why it's a good deal.

T-Mobile store manager Jeff Nelson rocking a pink iPhone t-shirt. Roger Cheng/CNET

"We've encountered some confusion," said Larry Petrone, district manager for T-Mobile's midtown Manhattan stores. "When they get past the idea that it's too good to be true, they really like it."

T-Mobile hopes the appeal of the no-contract plans will move its subscriber numbers in the right direction. The carrier released preliminary first-quarter figures earlier this month, having slowed the bleeding of so-called post-paid customers, or someone that T-Mobile defines as a person who pays for service at the end of the month. It lost 199,000 such customers in the period, compared with a net loss of 515,000 in the fourth quarter. In total, it added 579,000 customers, largely due to its prepaid and wholesale business.

T-Mobile will provide more complete financial data on May 8. A T-Mobile executive told CNET that the carrier likely wouldn't provide figures on iPhone sales until then.

A subdued affair
Today's launch lacked the usual fanfare. There were two other reporters talking to customers, one of whom left early. The employees were welcoming and jovial. Right before opening the doors, Petrone smiled brightly and declared to those in line that "there were only five iPhones in stock," before laughing and reassuring everyone that there were, in fact, plenty to go around.

Of course, this isn't a new iPhone, with T-Mobile playing catch-up and getting the iPhone 5 several months after virtually every other carrier started selling it. But for long-denied T-Mobile customers, this event was just as important.

T-Mobile employees busy getting iPhones to customers. Roger Cheng/CNET

"I kind of had a feeling they would eventually get it and I was one of the ones willing to wait," said Nene Bah, a customer who has been with T-Mobile for three years.

Bah, who works at a wholesale fashion company nearby ("I might be a little late," she joked), was toward the end of the dozen or so people in line, getting to the store five minutes before the doors opened.

The 24-year-old Bronx native was replacing her BlackBerry 9900 with the iPhone 5.

The launch wasn't without its hiccups. Garron had to wait more than 30 minutes for her iPhones, and the system had apparently gone down, forcing some customers to wait longer. Others were stuck waiting in the store with a white ticket signifying an iPhone order.

Building momentum
T-Mobile tried to set itself up for a strong launch, starting with the unveiling of the "Uncarrier" event late last month. At the event, CEO John Legere touted his iPhone 5 as the most affordable alternative in the industry.

Consumers who pass the necessary credit checks pay just $99 up front, and $20 on top of the service fee each month for the next two years. Consumers have the option of paying off the phone early.

A look at the plan that T-Mobile offers and what AT&T and Verizon offer show savings, although not necessarily to the extent that T-Mobile promises. Still, the company is offering a strong financial incentive to switch.

Some customers, however, aren't quite ready to make that jump to a no-contract plan. Fanidia Shawon, who walked in at 9:24 a.m. ET, said she was sticking to her contract plan since she was part of a family plan with multiple accounts.

Shawon, a 27-year-old licensed optician from Queens, has been on T-Mobile for 11 years, and has never had another carrier. With no inclination to switch, she resigned herself to never owning an iPhone.

"I joked that I was going to get the iPhone 10," she said. "But it came five generations early."

T-Mobile executives told CNET earlier this week that the no-contract plans have driven an increase in store traffic, even before the iPhone appeared today.

T-Mobile also sweetened the bait by extending its trade-in program to cover the iPhone. Customers who brought in a rival iPhone would get their $99 upfront fee waived and see savings of up to $7 a month.

T-Mobile's move to no-contract has made some ripples in the industry, with Virgin Mobile earlier this week offering $100 to customers who switched from T-Mobile by the end of May.

Looking ahead
T-Mobile hopes the iPhone launch marks the start of a turnaround for the carrier, which has long lagged behind its three larger competitors. The next milestone of progress for the carrier is its merger with MetroPCS.

But as logical a deal as that appears to be, it has run into interference from MetroPCS shareholders. T-Mobile CEO John Legere, not afraid to speak plainly, called his own institutional shareholders "greedy hedge funds" at the "Uncarrier" event. Several large firms have opposed the deal, and two shareholder advisory firms have recommended investors hold off for a better offer.

T-Mobile's parent, Deutsche Telekom, yesterday made its "best and final offer" for MetroPCS, tweaking the deal to reduce the debt the combined company would take on. And its largest shareholder, Paulson & Co., is now backing the deal.

It was a rainy day during T-Mobile's iPhone launch. Roger Cheng/CNET

MetroPCS would supply T-Mobile with additional spectrum necessary to keep delivering the speedy network, important as T-Mobile attempts to catch up to the big leads that rivals such as Verizon Wireless have with their 4G LTE networks.

The company certainly has to prove that its coverage stacks up against the competition. While the carrier talks big when it comes to the speed of its network, some customers are left with a bad impression of the quality of its service, an issue Legere told CNET was a byproduct of past poor performance. He said the carrier was working to change that perception.

For now, it's enough for some T-Mobile customers that it now offers the iPhone.

And what of Garron, who weathered the storm for a full hour before the T-Mobile doors opened? She said she's content with her Samsung Galaxy S III.

"I'm happy with it," she said, "and I don't have any plans to switch."

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