Bits Blog: A Conversation With T-Mobile US Executives

Bits Blog: AT&T Aims $450 Credit at T-Mobile Customers

T-Mobile to Make It Cheaper to Make Calls While Abroad

Often, travelers have to pay an extra $100 to their provider to get any cell service abroad. Or they must sign up for a short-term plan with a carrier in the country they are visiting.

T-Mobile US, one of the largest phone carriers in the United States, wants to change that. The company on Wednesday said it was eliminating the charges that a customer normally paid to use their phone number and data service in a foreign country, called roaming fees.

John Legere, T-Mobile’s chief executive, said in an interview that travelers had long been shocked by exorbitant cellphone bills after they traveled, so many people now just leave their phones off.

He said the point of the change was to help the people who would pay $100 for service abroad. But it was also to help “the people who fear turning their phone on.”

T-Mobile customers will be automatically enrolled in the free-roaming agreement on Oct. 31. Those who subscribe to the company’s plan, called Simple Choice, can take their smartphone to a foreign country and pay 20 cents a minute for voice calls. Text messages and data will be unlimited.

The free roaming benefit will apply to about 100 countries, including France, Spain, China, Japan and Russia.

The plan is the latest aggressive move from T-Mobile, which has been on a campaign to disrupt the American wireless industry over the last year. The company has said its goal is to eliminate the things that make people angry with their phone companies.

In March, the company shifted from requiring customers to sign two-year contracts. And in July, the carrier offered an option for customers to upgrade to a new phone after as little as six months, instead of waiting two years. The company also continues to offer unlimited data plans, which AT&T and Verizon Wireless discontinued long ago for new customers.

The changes are working. In August, T-Mobile reported that it had gained 1.1 million customers in the last quarter, its largest growth in four years.

The elimination of roaming fees raises a question: if the customers don’t have to pay the fee, then who will? Mr. Legere said he expected customers to continue joining T-Mobile in droves, which will more than make up for the money that could have been made from charging roaming fees.

“We just changed the game to where our coverage map is now the world,” Mr. Legere said. “Our network is now by far a much bigger coverage area than AT&T and Verizon combined.”

T-Mobile US Reports Resurgent Customer Growth

The company on Thursday said it had gained 1.1 million customers, including 685,000 contract subscribers, in the last quarter. That compares with a loss of 557,000 contract subscribers, the most valuable type of customer, in the same period a year ago. The upswing was its largest customer growth in four years.

The company, based in Bellevue, Wash., started offering the iPhone in April, when it also began offering new phone plans that addressed common frustrations with wireless companies, like confusing contracts and expensive data plans.

“By fixing the things that drive them mad, like contracts and upgrades, and freeing them from the two-year sentences imposed on them by our competitors, they are choosing the new T-Mobile in unprecedented numbers,” John Legere, chief executive of T-Mobile US, said of his customers in a news release.

Over the last several years, T-Mobile lost many customers largely because it lacked the iPhone and they were unhappy with its service. But this year has been full of change at the company: it finally landed a deal with Apple to sell the iPhone, it began an overhaul of its network and it started offering lower-cost plans to lure customers from competitors. The company also added extra muscle in its merger with the smaller carrier MetroPCS, which was completed in May.

The change is costing T-Mobile. The company posted a loss of $16 million for the quarter, compared with a profit of $207 million in the same period a year ago. But it also reported revenue of $6.23 billion, up from $4.9 billion last year.

(A majority of the company is still owned by Deutsche Telekom, the German carrier. This quarter was the first time T-Mobile US reported earnings as a separate company after its merger with MetroPCS.)

The net income was above the expectations of Wall Street analysts. They had expected revenue of $6.01 billion, according to a survey by Thomson Reuters.

In March, T-Mobile discontinued traditional two-year contracts, allowing customers to buy a smartphone for a lower upfront cost and adding the cost of the device to their monthly bill over two years. It also continued to offer plans with unlimited data, an option that the top two carriers, Verizon Wireless and AT&T, killed years ago.

In general, T-Mobile’s plans are also cheaper than its competitors’ — for $70 a month, a customer can have unlimited minutes, text messages and data. The plans offered by AT&T and Verizon cost about $100 a month or more.

T-Mobile expects the growth to continue. For the full year, it said it expected to add 1 million to 1.2 million contract subscribers.

In its effort to lure customers from competitors, the company has been working on its wireless network. It is far behind Verizon and AT&T in rolling out a faster fourth-generation network, called LTE. T-Mobile has LTE deployed in about 120 metropolitan areas, while Verizon has LTE in about 500 cities and AT&T has LTE in about 360 markets. The company will continue to expand the network throughout next year, according to Neville Ray, T-Mobile’s chief technology officer.

Bits Blog: The iPhone Hasn’t Saved T-Mobile USA Yet

Reuters John Legere, chief executive of T-mobile, at an event in March to announce the carrier’s new iPhone offering.

There’s no question that finally being able to sell Apple‘s iPhone was good for T-Mobile USA, the struggling carrier that bled many subscribers to its rivals over the last few years, partly because it lacked the iPhone. Now the question is when — or if — adding the phone will help lead the company to a meaningful comeback.

Kantar Worldpanel, a research firm, published a report on Monday suggesting that T-Mobile has an awfully long way to go. The company’s share of the wireless market was 10.1 percent in the three months ending in May, down from 13.5 percent over the same period last year.

It’s worth noting that the iPhone didn’t become available on T-Mobile until April. And Dominic Sunnebo, an analyst at Kantar, said T-Mobile’s strength with the iPhone appeared to be attracting people who were buying smartphones for the first time. Of T-Mobile consumers who bought an iPhone, 53 percent had previously owned a traditional cellphone, also called a feature phone, he said. The problem for T-Mobile, though, is the dwindling number of people still using feature phones. Earlier this year, global shipments of smartphones surpassed feature phones.

To stage a true comeback, T-Mobile will need to lure subscribers from rivals like AT&T and Verizon. That still appears to be a difficult task, and not only because both AT&T and Verizon have long offered the iPhone. Both those carriers are significantly ahead of T-Mobile in the race to deploy fourth-generation wireless networks — and when it comes to choosing a carrier, customers care about the coverage and speed of their service. T-Mobile only recently started turning on its fourth-generation network, called LTE, in a small number of cities, whereas AT&T has deployed 4G LTE in about 300 markets, and Verizon Wireless has LTE in about 500 markets. T-Mobile is expected to make more announcements about its network on Wednesday at a press event in Manhattan.

For now, T-Mobile is trying to separate itself from the competition with its phone plans. In a marketing campaign, the company calls itself the “uncarrier” — a wireless company that is different because it cares about what customers want. Part of the campaign involved breaking away from traditional two-year contracts and offering unlimited data plans.

Bits Blog: T-Mobile to Pay $308 Million for More Spectrum

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MetroPCS Shareholders Approve Merger With T-Mobile USA

The deal, first announced in early October 2012, had looked set for defeat until earlier this month, when Deutsche Telekom gave in to pressure to reduce the combined company's debt.

Activist shareholder P. Schoenfeld Asset Management had led a proxy battle against the original deal, while the biggest MetroPCS shareholder, Paulson & Co, had also threatened to vote against it. Both investors have said they were pleased with the improved terms.

But some shareholders said they were happy to see MetroPCS combine with a larger player, regardless of the details.

"It was significant that they sweetened the offer, but I would have voted in favor of the previous terms," said Robert Capps, a Dallas-area shareholder and telecom executive.

Of the MetroPCS shares that were voted, the company said about 93 percent were cast in favor of the main proposal related to the deal.

MetroPCS shares were down 5 cents at $11.64 in afternoon trading.

Shareholders will receive $4.06 per share in cash plus stock equivalent to 26 percent of the combined company in the reverse merger and Deutsche Telekom will own the rest.

Deutsche Telekom said the combined company will be called T-Mobile US and trade on the New York Stock Exchange under the symbol "TMUS." The deal is expected to close at the end of this month.

BETTER POSITION AGAINST RIVALS

MetroPCS, a provider to cost-conscious consumers who pay for calls in advance, and T-Mobile USA are looking to combine their spectrum assets to compete better with bigger rivals.

By tying up with MetroPCS, Deutsche Telekom hopes to provide T-Mobile USA with the spectrum to build a network capable of handling the vast data volumes that U.S. consumers and businesses use on smartphones and tablets.

Some Deutsche Telekom shareholders, however, worry that even a successful merger might not be enough for T-Mobile USA to catch up with rivals.

T-Mobile USA lost 515,000 contract customers in the fourth quarter of 2012, although it recently announced smaller losses of 199,000 contract customers in the first quarter.

The company recently overhauled its price structure to eliminate most phone subsidies and started selling Apple's iPhone for the first time. But its network quality lags Verizon Communications Inc and AT&T Inc, which have invested massively in fourth-generation mobile technology in recent years.

The United States is key to the investment case for Deutsche Telekom. It earned 26 percent of group revenue there last year and 20 percent of its operating profit.

The German group has long searched for a way to help T-Mobile USA gain critical mass to compete. In 2011, antitrust regulators blocked a $39 billion deal bid for AT&T to buy T-Mobile USA.

The merger also paves the way for what some investors and bankers think Deutsche Telekom really wants - to ultimately reduce its exposure to a highly competitive market.

For now, Deutsche Telekom has committed to holding its shares in the new combined entity for 18 months.

(Additional reporting by Sinead Carew in New York, Harro ten Wolde in Frankfurt and Leila Abboud in Paris; Editing by Gerald E. McCormick, Bernadette Baum and Andre Grenon)

DealBook: Deutsche Telekom Sweetens T-Mobile Bid for MetroPCS

Mary Altaffer/Associated PressA MetroPCS store in Manhattan.

6:07 p.m. | Updated

Deutsche Telekom sweetened a bid by its T-Mobile USA unit for MetroPCS on Wednesday, after running into fierce resistance from shareholders of the target company.

The German company offered to cut the amount of debt the combined company would bear by about $3.8 billion and reduce the interest rate by half a percentage point. It also agreed to extend a lockup period in which the company could not sell shares in the merged cellphone service provider to 18 months from 6 months.

The move will essentially improve the overall value of the merged entity’s equity. Deutsche Telekom estimates that the lower debt and interest rate will add almost $3 a share in additional value for MetroPCS shareholders.

Under the present terms of the offer, MetroPCS shareholders would be paid about $4.09 a share and receive a 26 percent stake in the combined company.

Deutsche Telekom said that its latest proposal was “best and final.” A vote on the deal, which had been set for Friday, has been rescheduled to April 24.

The move is a win for investors like the hedge funds Paulson & Company and P. Schoenfeld Asset Management, who have called for improvements to the original offer. Shares in MetroPCS risen steadily this year, as shareholders expected an improved offer to come, and people involved in the merger have said that the current offer is likely to fail if put to a vote.

Paulson & Company and P. Schoenfeld have argued that the T-Mobile bid as it stands would add too much debt and at too high a price. They have called on Deutsche Telekom to reduce the amount of leverage on the combined American telecom.

Proxy advisory firms like Institutional Shareholder Services have largely sided with the hedge funds, putting additional pressure on Deutsche Telekom to consider raising its offer.

P. Schoenfeld said in a statement that it was pleased by the new offer, though it is currently reviewing its terms.

DealBook: Paulson Opposes MetroPCS Merger With T-Mobile

7:59 p.m. | Updated

Fred R. Conrad/The New York Times John Paulson’s firm owns a 9.9 percent stake in MetroPCS.

The investment firm Paulson & Company, the largest shareholder in MetroPCS Communications, announced on Thursday that it would oppose a planned merger with T-Mobile, saying the deal would saddle the new company with too much debt.

“We believe MetroPCS is worth more as a stand-alone company,” the firm, founded by the billionaire hedge fund manager John Paulson, said in a statement. The firm has a 9.9 percent stake in MetroPCS.

Last October, the two companies announced a complex transaction, under which MetroPCS would conduct a 1-for-2 reverse stock split and pay out $1.5 billion in cash to its existing shareholders. The new company would then issue new stock worth about 74 percent to T-Mobile’s parent, Deutsche Telekom, leaving existing MetroPCS investors with a 26 percent stake.

P. Schoenfeld Asset Management, another large shareholder with a 1.6 percent stake in MetroPCS, announced earlier this month that it was leading a proxy battle opposing the merger.

The deal has not been viewed favorably by the markets, and MetroPCS’s stock is down about 32 percent since before the deal was announced.

In a letter to the MetroPCS and Deutsche Telekom boards on Thursday, Mr. Paulson outlined several issues he had with the merger, including that T-Mobile’s performance has been “poor.”

He did conclude in his letter, however, that he would support a revamped deal that reduces the new company’s debt by $6.6 billion and lower its interest rate to 4.2 percent.

“Indeed, Paulson believes this lower debt and lower interest rate will result in a significantly improved multiple for MetroPCS/T-Mobile, increasing the economic return not only to MetroPCS shareholders, but also to 74% owner Deutsche Telekom,” he wrote.

The company says it plans to continue to pursue the merger.

“The MetroPCS board of directors believes that the proposed combination with T-Mobile is in the best interests of MetroPCS and all MetroPCS stockholders and continues to recommend that MetroPCS stockholders vote in favor of the proposed combination,” a spokeswoman said in a statement.

Deutsche Telekom also reiterated that it remained committed to the merger.

“This combination will substantially benefit the shareholders and customers of both companies by creating a new company that will be the leading wireless value carrier with expanded scale, spectrum and financial resources to compete across the entire U.S. market,” the company said in a statement.

Gadgetwise Blog: Is the New T-Mobile Pricing a Good Deal?

T-Mobile has said it will start selling Apple products in 2013, but will stop underwriting the cost of phones with its contracts. That most likely means paying the full $650 for an iPhone.

But what most consumers overlook is that when they get a $650 iPhone 5 for $200 with a two-year contract, they aren’t really getting a discount on the phone. The $450 difference is just hidden, spread out over the life of the contract.

So it raises the question, is getting a $650 iPhone from T-Mobile a good deal? It can be — especially for heavy data users. And you don’t have to wait for the new pricing to take effect. If you know what to do you can get the deal now.

First, let’s run the numbers. How much do these phones and plans really cost? I worked through some figures with the help of Validas, which analyzes phone use and costs.

With the T-Mobile contract you’d pay $650 for the iPhone and $70 a month for unlimited talk, text and data, for a total cost of $2,330 over two years, or $97 a month. The plan promises full unlimited data without slowing down the data connection when you reach a limit, as some of the others do.

Verizon has no unlimited plan, so to nearly match T-Mobile, you’d have to choose the 20GB data plan (far more than most people use), which adds $150 to the monthly contract, driving the cost to $190 a month plus $200 for the iPhone. That totals $4,760 over two years, or $198 a month.

AT&T also has no unlimited plan, so you would also have to choose the 20GB data plan, which adds $200 a month to a $30 monthly voice and text fee. With a $200 iPhone that comes to $5,720 for two years, or $238 a month.

Sprint does have an unlimited plan for $110 a month. That plus the $200 iPhone comes to $2,840 total for two years, or $118 a month.

Bottom line: the T-Mobile deal is the best by a margin of $21 a month over the next best deal.

But this isn’t a perfect comparison. Very few people use anywhere near 20GB of data. According to research by Validas, only 1 percent of smartphone owners use more than 4GB of data a month.

For a few dollars less than the T-Mobile plan, you could buy a 1GB monthly data plan from AT&T or Verizon, one that should satisfy the data needs of 83 percent of smartphone owners, Validas said.

That means that for the 17 percent of phone users who require more than 1GB of data a month, T-Mobile’s is certainly the best deal.

You don’t have to wait for T-Mobile to start its new pricing to take advantage of this deal. It is available now by buying a SIM card from T-Mobile. In this case you are just buying the chip that gives the phone its identity, and you are bringing your own phone. And it doesn’t have to be an iPhone; it can be any phone that works on the GSM network, which is also the network AT&T (and most of Europe) uses.

DealBook: T-Mobile Seals Deal With MetroPCS

The parent company of T-Mobile USA agreed to buy MetroPCS on Wednesday, as the cellphone providers looked to compete with bigger rivals.

The merger is aimed at making T-Mobile a more robust competitor to Sprint Nextel, particularly in low-cost cellphone service. The deal will also help T-Mobile gain more customers and resources to build out a next-generation data network.

Under the terms of the complex transaction, MetroPCS will conduct a 1-for-2 reverse stock split and pay out $1.5 billion in cash to its existing shareholders, or about $4.09 a share. It will then issue new stock worth about 74 percent to T-Mobile’s parent, Deutsche Telekom, leaving existing MetroPCS investors with a 26 percent stake.

“The T-Mobile and MetroPCS brands are a great strategic fit – both operationally and culturally,” René Obermann, the chief executive of Deutsche Telekom, said in a statement. “The new company will be the value leader in wireless with the scale, spectrum and financial and other resources to expand its geographic coverage, broaden choice among all types of customers and continue to innovate.”

The cellphone carrier is bulking up in the face of increased competition. The combined company, which will be named T-Mobile, will have nearly $25 billion in revenue and $6.3 billion in profit. T-Mobile expects to wring out $6 billion to $7 billion in cost savings.

CLOSING THE GAP If the parent company of T-Mobile USA buys MetroPCS, the combined unit would have the fourth most cellular subscribers.

More important, T-Mobile will add to its customer base. With 42.5 million users, the combined company will close the gap significantly with Sprint, the No. 3 player with 56.4 million customers.

T-Mobile and MetroPCS will continue to operate as separate brands.

Throughout the morning, T-Mobile executives sought to allay one of the biggest concerns about the merger, the incompatibility of the company’s network with MetroPCS’ own. John Legere, who will become the chief executive of the combined network operator, argued that the company will slowly move MetroPCS’ customers to its own GSM standard — with the goal of moving the unified entity to the Long Term Evolution technology down the road.

The aim was to avoid comparisons to Sprint’s merger with Nextel, which failed at the same task and left that merged company in a far weaker position.

“This is not a replay of a debacle that we’ve seen in the past,” he said on a conference call with analysts. “We will not smash together two networks with differing technologies.”

Morgan Stanley and Lazard advised Deutsche Telekom. Legal advice was provided by Wachtell, Lipton, Rosen & Katz; Cleary Gottlieb Steen & Hamilton; K&L Gates; and Wiley Rein.

MetroPCS was advised by JPMorgan Chase, Credit Suisse and the law firms Gibson, Dunn & Crutcher; Paul Hastings; and Telecommunications Law Professionals. A special committee of its board was advised by Evercore Partners and the law firms Akin Gump Strauss Hauer & Feld and Fulbright & Jaworski.

DealBook: T-Mobile Looks to Buy MetroPCS

Oliver Berg/DPA, via Agence France-Presse — Getty ImagesRene Obermann, chief of Deutsche Telekom.

9:06 p.m. | Updated The parent company of T-Mobile USA, the struggling cellphone service provider, is in talks to buy MetroPCS as it fights to compete against two bigger rivals.

A deal would be the latest chapter in an industry that has rapidly consolidated to a handful of major players. It would come after last year’s aborted attempt by AT&T to buy T-Mobile for $39 billion, an ambitious move thwarted by government antitrust regulators.

Both T-Mobile’s parent, Deutsche Telekom, and MetroPCS confirmed on Tuesday that they were in talks. A deal could be announced as soon as Wednesday, according to people briefed on the matter, who cautioned that final moves could derail an agreement.

Any possible transaction would most likely involve a stock swap, leaving Deutsche Telekom with a significant stake in a newly public T-Mobile.

Shares in MetroPCS climbed nearly 18 percent on Tuesday, to $13.57. That valued the company at $4.93 billion.

In recent years, AT&T and Verizon Wireless have seized increasingly bigger portions of the American cellphone market; together, they claim to have more subscribers than their next six competitors combined. Though a merger would not put the subscriber base of T-Mobile and MetroPCS anywhere near the two largest carriers, it would make the combined company a stronger competitor.

T-Mobile and its larger rival, Sprint Nextel, have both sought customers seeking lower-cost plans. Both have also raced to build their next-generation data networks to better service newer smartphones, like the Samsung Galaxy S III.

But T-Mobile has fallen well behind Sprint in its fight for users. As of midyear, the company claimed about 33.2 million customers, compared with Sprint’s 56 million. It still does not offer the Apple iPhone, which has deprived it of subscribers with higher-price data plans.

T-Mobile also lost 205,000 subscribers in its second quarter of this year, quadruple what it reported a year ago.

Buying MetroPCS, an 18-year-old wireless service provider based in Richardson, Tex., might solve those problems. The company had 9.3 million customers as of June 30, many located in major cities. And it has already begun introducing Long Term Evolution, or LTE, the high-speed network on which smartphones like the iPhone 5 run.

Merging T-Mobile and MetroPCS could prove tricky. While the two could eventually combine their LTE networks, the majority of their phones run on incompatible network standards, reducing any cost savings from a tie-up in the short run. And MetroPCS offers only prepaid plans, a business that T-Mobile has been eager to exploit — but which also carries lower margins.

Yet such headaches may prove worthwhile, because a deal would deprive Sprint of a suitable takeover target to fix its own problems. Sprint had neared its own deal for MetroPCS this year, only to walk away after its board vetoed those plans at the 11th hour. Sprint’s stock fell 5.4 percent on Tuesday as investors worried about what a T-Mobile-MetroPCS combination would mean for its ability to vie for consumers.

Sprint’s chief executive, Daniel Hesse, said at an industry conference last month that he expected his company to participate in what he saw as a continuing wave of consolidation.

“This leaves Sprint awkwardly independent and on the outside looking in,” Craig Moffett, an analyst at Sanford C. Bernstein & Company, said in a phone interview. He added that Sprint may feel compelled to make a higher bid because “the alternative is so unattractive.”

Shares in Leap Wireless International, another prepaid wireless service provider, closed more than 8 percent higher on Tuesday, as investors hoped the company would prove to be another merger target. But analysts said that Leap, with its focus on lesser markets and with major operational problems, may remain independent for a while longer.

“We don’t view Leap to be as attractive as MetroPCS; Leap has a smaller subscriber base, lower margins and burns cash,” Mike McCormack, an analyst at Nomura, wrote in a research note on Tuesday.

Should it reach a deal, Deutsche Telekom could sell down its stake in T-Mobile over time. That would eventually unwind its expensive experiment in the American marketplace, one that began with the German telecom’s purchase of VoiceStream Wireless at the peak of the dot-com era in 2001. Since then, however, troubles at T-Mobile have cost Deutsche Telekom dearly, including an $18 billion write-down a year later.

Executives at the German telecommunications company have openly spoken about possible deals for the American unit, including by staging an initial public offering or combining it with another industry player.

One uncertainty about any deal would be the reaction from antitrust regulators. But a transaction may draw less fiery opposition than the failed combination of AT&T and T-Mobile, given the smaller size of MetroPCS.

This post has been revised to reflect the following correction:

Correction: October 2, 2012

An earlier version of this article misstated the number of T-Mobile customers. There are 33.2 million, not 33,168.

DealBook: T-Mobile Sells Rights to Towers for $2.4 Billion

Crown Castle, a major wireless tower operator, has agreed to pay T-Mobile $2.4 billion in cash for rights to 7,200 cell phone towers.

Under the transaction, Crown Castle will lease the towers for 28 years, after which time it will have the option to purchase the assets from T-Mobile.

The deal comes as T-Mobile, a unit of Deutsche Telekom, tries to find its way in the aftermath of AT&T‘s failed $39 billion bid for the American subsidiary, which crumbled last year amid regulatory opposition. Since the deal collapsed, Deutsche Telekom’s management team has reiterated the need for new investment and increased network capacity. On Friday, the company said it would use the proceeds to pay down debt and improve its network service.

“We are pleased to reach this mutually beneficial agreement with Crown Castle,” John Legere, the head of T-Mobile USA, said in a statement on Friday. “T-Mobile USA is working aggressively to make our 4G network stronger, faster and more dependable for consumers, and this transaction will support our ongoing $4 billion network modernization initiative that is the cornerstone of this effort.”

The deal is expected to close in the fourth quarter of this year.

For Crown Castle, the deal will allow the company to significantly expand its network of towers in the top markets of United States and improve service in densely populated cities. The transaction, which will increase its tower count by a third, will be financed by a mix of cash and debt. It is expected to close in the fourth quarter of this year.