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Chris joined TBR in 2007 and is currently a Research Analyst within the Networking & Mobility Practice. Chris supports TBR’s quarterly coverage of a number of network infrastructure vendors, including Alcatel-Lucent, Cisco, Ericsson, Nokia Siemens Networks, Huawei and ZTE, as well as coverage of... More
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  • New T-Mobile USA CEO Plotting Course from “Challenged” Operator to “Challenger” in 2011 0 comments
    Jan 21, 2011 5:18 PM | about stocks: T, DTEGY, VZ, S

    Commentary on T-Mobile USA's Investor Day

    Who needs LTE – T-Mobile USA is going all-in on HSPA+

    While its competitors look to LTE and WiMAX to provide greater data throughput, T-Mobile confirmed that it will fully embrace advances in HSPA and delay investing in LTE for at least four years. The operator will roll out HSPA+ 42 Mbps to 140 million POPs by the end of 2011, and additional speed upgrades will follow through 2014. Coverage for the fastest speeds will be confined to major markets, but rural buildouts will ensue over the next three years, expanding overall coverage to 290 million POPs. Innovation in carrier bonding and MIMO (multiple input/multiple output) technology has made it possible for HSPA+ networks to exceed theoretical speeds of 600 Mbps. Though actual speeds are substantially lower, this aggressive upgrade plan keeps T-Mobile either abreast of or ahead of the competition. The plan will also help the operator save more than $1 billion in capex spend through 2014, because each HSPA+ iteration requires a software upgrade, which is much less costly to deploy than rolling out an LTE network from scratch. Capex for these software upgrades over three years will cost T-Mobile $400 million, while rolling out an LTE network is pegged at $1 billion to $2 billion.

    Data plans and smartphones for the masses

    T-Mobile will heavily promote its $10 introductory data plan in 2011. Not only is this offering the lowest entry plan among Tier 1 operators (especially after Sprint announced this month that it will raise prices on its unlimited data plan for all smartphones), but it also packs the most value per MB. Making data affordable is a key priority, and T-Mobile has an opportunity to undercut competitors and offer consumers differentiated packages. One way the company will differentiate in data is to push Wi-Fi in consumer homes, with nearly all T-Mobile smartphones being Wi-Fi enabled by 2012. Encouraging Wi-Fi usage helps T-Mobile offload data traffic from its HSPA+ network, freeing up bandwidth.

    In smartphones, T-Mobile is fully embracing Android, claiming that Android devices compatible with HSPA+ are superior to 3G iPhones in terms of speed and functionality. To make smartphones more accessible to mass market consumers, T-Mobile is pushing to expand its sub-$100 smartphone offerings, and will likely expand its relationships with Chinese device vendors Huawei and ZTE, both of which are committed to bringing low-cost Android smartphones to market.

    Merging affordable smartphones with value-oriented data plans is T-Mobile’s recipe for rapidly growing data ARPU, reducing churn and winning contract customers. Attaining the $3 billion over three years in revenue growth that management is promising will require solid execution of this smartphone plus data strategy. The revenue growth target is one of the company’s goals for its Challenger program. The 25+ devices coming to T-Mobile’s portfolio in 2011 will span all price points to reach critical mass of smartphone adoption.

    Leveraging parent company assets will allow T-Mobile to compete with heavyweights Verizon and AT&T in the enterprise space

    A commitment to growing the enterprise business will have T-Mobile competing against incumbent players Verizon and AT&T, which together command over 80% of the enterprise mobile services market in the United States. The competitive advantage for T-Mobile lies in leveraging T-Systems, Deutsche Telekom’s ICT unit that focuses on enterprise. Closer collaboration and asset sharing with its parent company gives T-Mobile considerable clout among corporate, SMB and public sector clients, particularly considering DT’s global footprint spans much of Europe, South America and Asia. T-Systems already has an established footprint in North America, with over 500 employees and facilities in New York City, Houston, Chicago, Detroit and Tempe. T-Mobile USA has an opportunity to leverage those assets as well as T-System’s global assets to drive new business and offer clients a full range of ICT solutions. Another area T-Mobile can exploit is in offering SMB voice and data connectivity services, a business that can be grown organically with minimal investment using the company’s existing network.

    What does this mean for investors?

    2011 will be a banner year for T-Mobile USA as network, smartphone, and data initiatives start to bear fruit. The company is in an enviable position compared to its Tier 1 rivals as further HSPA+ upgrades will require low capex spend and can be overlaid relatively quickly across its existing 3G footprint. Meanwhile, Verizon, MetroPCS, Sprint (via Clearwire), and AT&T are involved in costly 4G rollouts, which will steer more cash to capex.

    Unfortunately, T-Mobile USA is not a standalone company so if investors want to participate in the company's strong turnaround, they will have to consider buying shares in its parent company, Deutsche Telekom (OTCQX:DTEGY).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Stocks: T, DTEGY, VZ, S
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