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T-Mobile Hopes Low Price Lures Customers; Posted A $3.9 Bil Loss; Market share is growing at U.S. un

Discussion in 'Wireless News' started by Dukedog, Oct 16, 2002.

  1. Dukedog

    Dukedog Senior Member
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    T-Mobile Hopes Low Price Lures Customers; Posted A $3.9 Bil Loss; Market share is growing at U.S. unit, but red ink flows at wireless service

    BYLINE: BY REINHARDT KRAUSE

    BODY:
    Amid slowing growth of wireless phone subscribers, Deutsche Telekom AG's U.S. unit is grabbing market share. But it's coming at a steep cost.
    T-Mobile, formerly VoiceStream Wireless, is luring customers with some of the industry's lowest prices. In the process, it's losing scads of money.


    It posted a $3.9 billion net loss in the first half of 2002.
    Rivals say T-Mobile can't sustain so much red ink, even if it gains market share.
    Deutsche Telekom, though, is trying to make its U.S. investment pay off.

    It acquired VoiceStream for $31.2 billion in cash and stock in 2001. With 8 million subscribers, T-Mobile is the sixth biggest U.S. wireless firm. It's trying to move up with an aggressive marketing campaign.
    Needs A Boost

    "T-Mobile is intent on underpricing its competition in every market to steal share from incumbent service providers," said Sean Butson, a Legg Mason Wood Walker analyst.

    As of June 30, T-Mobile held 5.9% of the U.S. wireless market, says Morgan Stanley. That's up from 5% a year ago.

    Morgan Stanley analyst Luiz Carvalho expects T-Mobile to post a strong third quarter.

    "T-Mobile is gaining share due to its affordable service offerings," said Carvalho.

    If T-Mobile continues to gain share in the U.S., that'll give Deutsche Telekom's wireless ambitions a much-needed boost, analysts say.

    Deutsche Telekom hired investment banks earlier this year to explore a deal for VoiceStream -- rebranded as T-Mobile over the summer.

    Both Cingular Wireless Inc. and AT&T Wireless Inc., the second and third biggest U.S. wireless firms, have said they're interested in merging with T-Mobile USA.
    Local Bells SBC Communications Inc. and BellSouth Corp. jointly own Cingular.
    Talks with Cingular and AT&T Wireless, though, have progressed slowly.

    In July, Deutsche Telekom shareholders ousted Chief Executive Ron Sommer. He had pushed too hard for overseas expansion.

    But his departure doesn't mean Deutsche Telekom will retrench and sell off T-Mobile USA.

    Interim CEO Helmut Sihler says the company might combine T-Mobile USA with another firm while remaining a shareholder.

    That approach has been taken before. U.K.-based Vodafone PLC, the biggest wireless firm globally, owns 40% of Verizon Wireless.

    If T-Mobile keeps gaining U.S.share, that may give Deutsche Telekom more bargaining chips with AT&T Wireless or Cingular.

    "DT's management position is pretty clear," said Alex Trofimoff, analyst at Sanford Bernstein Research. "They want to keep a presence in the U.S. market. And they want to have (operating) control over that presence. So an outright sale doesn't seem likely."
    No IPO Yet

    At a New York meeting, Sihler said Deutsche Telekom could still opt for a go-it-alone strategy by not merging T-Mobile USA with another firm. But that may pose financing problems.

    Deutsche Telekom has piled up $63 billion in debt. In regulatory filings, T-Mobile USA lists $8.7 billion in debt.

    In 2001, Deutsche Telekom shelved plans for an initial public offering for its global T-Mobile unit. The IPO would have enabled the German firm to pare its debt.

    It's unclear when market conditions will improve enough for the IPO to take place, analysts say. Strong growth at the U.S. unit would boost T-Mobile International's appeal to investors.

    Deutsche Telekom has more than 47 million subscribers worldwide. It has expanded into the U.S., the United Kingdom, Austria and Eastern Europe.
    No Games
    In the U.S., aggressive pricing has been key to T-Mobile's strategy.

    Many industry analysts focus on how many "anytime" minutes carriers offer subscribers.

    Those minutes let customers call cheaply in the daytime and early evenings when network usage is high. Early this year, VoiceStream began offering customers 3,000 anytime minutes for $60 monthly.

    Some rivals are fighting back. AT&T Wireless recently rolled out a rate plan that offers 1,000 anytime minutes for $40 monthly, Trofimoff says.

    No. 1 carrier Verizon isn't playing that game, says spokesperson Nancy Stark. Its best offer is 550 anytime minutes for $55.
    "We're focused on the quality of our customer base," she said.

    T-Mobile has focused on the under-30 adult and teen-age market. That part of the wireless market is expanding at a faster rate, analysts say.

    T-Mobile USA posts the second lowest monthly revenue per subscriber of the six big carriers. It nets $49 on average. That's compared with Nextel Communications Inc.'s leading $72.
    Good Positioning

    "T-Mobile is making a dent at the bottom of the market with very attractive price points," said Roger Entner, analyst at Yankee Group.

    According to Lehman Brothers Inc., T-Mobile is having a big impact in California, where it's new to the market. "T-Mobile is surprisingly well-positioned to report a blowout quarter on the net (customer) adds front," said analyst John Bensche.

    He forecasts that T-Mobile will sign up 750,000 customers in the third quarter, up from 373,000 a year earlier.

    T-Mobile's California push will hurt AT&T Wireless and other carriers, he adds.

    Lehman Brothers analysts in Europe say that Deutsche Telekom officials indicate T-Mobile could even hit 950,000 in the third quarter and end the year with 9.5 million to 10 million U.S. subscribers.

    Some onlookers, like Trofimoff, say T-Mobile's subscriber gains appear to be coming at the expense of Sprint PCS. It's the fourth biggest wireless firm.

    Sprint PCS has tightened its credit policies. That's because too many of its customers didn't pay bills.

    After booming growth last year, Sprint PCS is expected to report a net loss of subscribers in the third quarter.

    "T-Mobile's focus on the lower-tiered subscriber will come back to haunt the company in the future, similar to the ill effects that Sprint PCS is suffering from," Butson said.
     
  2. Matt

    Matt Twin girls!
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    Dukedog, do you know why the loss was $3.9B? Do you know why it's not important? I do, but I was wondering if you knew what you posted.....
     
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  3. Guest

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    3.9 B loss is not important to a Company with over 50 B already in debt? Wow, where have I been? I must have taken some pretty crappy finance classes in college. I'm going to demand a refund!
     
  4. Dukedog

    Dukedog Senior Member
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    I do know that they can't not survive if they don't start making profits, all T-mobile doing is getting all the cheap customers, You might not like the fact that they are not going to survive on they own, (operation cost and etc).
     
  5. jmccrane

    jmccrane Bronze Senior Member
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    Yeah, basic economics...they can't survive forever without profits. They have a huge uphill battle in terms of building towers. I keep getting it pointed out to me that they have licenses for 96% or so of the country, but they don't cover nearly that much. Even Sprint's coverage has raced past T-Mobile.

    Dukedog is 100% correct. They have to find ways to turn profits...that can only mean fees, charges, nicel-and-diming for data services, etc. if they really want to turn profitable and not merge with anyone.
     
  6. Matt

    Matt Twin girls!
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    The $3.9B loss wasn't an actual loss! It was a write-down of license assets. The Gov't forced all of the carriers to cease amortizing the value of their licenses over 40 years. They basically said "it all comes due now." I think is was accounting standard SAFS #142. It was a non-cash loss - just a change in the paperwork - and it was REQUIRED by the Gov't.

    Dukedog - profits will come soon. Maybe in the 4th quarter since they are signing up lots of people, and after a few months you overcome the initial marketing costs and start earning 'real' dollars on those subscribers. TM USA is alreday EBITDA positive, and the losses are shrinking rapidly. For example, 2nd quarter loss went from $800M in 2001 to $300M in 2002.

    As far as a merger, I'm not totally against it. The conditions have to be right, though in order for me to be "happy" about it. I like the path T-M is taking. Cingular needs T-M specturm, T-M needs Cingular's cash flow. Comments about operation and costs for T-M are frequently overstated. Yes, T-M is the 6th largest carrier in the US, but they are part of the 2nd largest global carrier. That size gives them an advantage in terms of equipment purchases, etc. - capital expenditures - since the equipment providers want to sell to ALL of T-Mobile, not just T-M USA.
     
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  7. Matt

    Matt Twin girls!
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    True, but you have to acknowledge that long term analog is dead. - Verizon and cingular carry only 2-3% analog traffic today.

    T-M covers 91% of what AT&T digital does, and more than Cingular (considering TDMA is soon to be dead as a 3G path), and on par with Verizon's DIGITAL coverage, about 90% of that too (In another thread a while back I cited a lick stating that Verizon will have about 225 million ditigal POPs at the end of the year.

    Sprint is the digital leader by far.
     
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  8. ehcruzan

    ehcruzan Bronze Senior Member
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    Matt, what are the prospects of Verizon coverting all their analog sites to digital? I have no idea how much of their coverage is analog neither do I know where their analog coverage areas are.
     
  9. jmccrane

    jmccrane Bronze Senior Member
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    They will convert them once they get around to it, but it's low on the priority list since the sites are in low-usage areas (the only one area I can think of right off hand is upstate NY, before the Canada border up I-80). They don't want to spend the money right away to upgrade sites that few people are using as it is.
     
  10. Guest

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    have you recently looked at a t-mobile gsm coverage map? i think your figures are reversed. it looks like their gsm network covers 9% and the remaining 91% is dead air. please look at their latest map and tell us how you see that coverage area as 91% (not even remotely close).
     
  11. Guest

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    wrong, again. where do you get this stuff from? this has absolutely no substance or truth whatsoever.
     
  12. jmccrane

    jmccrane Bronze Senior Member
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    Ok, if we're all wrong, why don't you...
    1. Identify yourself!
    2. Give us the truth? Rather than just calling us wrong.
     
  13. Guest

    Guest Guest

    my name is Bob, okay? the truth is in the print, moron. look at T-Mobile's coverage map in purple - that's their gsm network. if you're not entirely sure about what you're seeing in print, check Cingular's preferred national network coverage map for New York City. The orange, same as T-Mobile's purple, is yes, you guessed it T-Mobile's gsm national network. Now tell us, how is that 91% of the US? do you think we are blind and stupid?

    p.s: just because you have a "membership" and some fictitious name on this forum does not give you "credibility". if anything your stupid comments give you absolutely none. btw...your other stuff about verizon and analog/digital is as much crap as the other stuff. get your facts straight before posting bull, dope.
     
  14. jmccrane

    jmccrane Bronze Senior Member
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    Hey Bob, Jim here. First of all you got the quoting messed up. I never said that T-Mobile's GSM covers 91% or whatever, that was another poster.

    And BTW, I'm not sure what you're saying is flase about the Verizon analog/digital, but Verizon DOES still have analog areas...upstate New York is one of them. Some rural areas where Verizon pcicked up smaller carriers are still analog as well. If you can provide facts that prove me wrong, be my guest. I haven't seen anything to the contrary though.
     
  15. Matt

    Matt Twin girls!
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    Hi Bob [​IMG]

    Please reread what I posted. T-Mobile's network is 91% of AT&T's DIGITAL network. That's what I said. I didn't say it covered 91% of the USA. click here and scroll down for the explanation. T-Mobile's GSM network covers approximately 72% of the population, about 75% if you include their roaming partners.

    Coverage is determined by people, not geographical area.
     
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  16. jmccrane

    jmccrane Bronze Senior Member
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    I agree. Personally, I'd rather have a carrier cover 95% of where I will travel rather than 95% of the country. T-Mobile is far from perfect, but a lot of Verizon's coverage is in the boondocks, which leads to misrepresentations of how good it'll be (except for people who go rural often). Therefore, the most important thing isn't total coverage as a % of the country, it's RELEvant coverage to where people live.
     
  17. SPRINTPCSGUY2002

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    Verizon network is 85% analog and 15% Digital. Thats why they have a bigger footprint as far as coverage goes.. their digital network are centered around major metropolitan areas. Rural area are primaraly Analog.. Try using their "Get it NOW!" service traveling between cities on an interstate. you can't access 3G services from an analog network.
     
  18. ehcruzan

    ehcruzan Bronze Senior Member
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    15%? That sounds too low to be true. Are you sure you don't have it reversed?
     
  19. jmccrane

    jmccrane Bronze Senior Member
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    No, Verizon's network is mostly digital, I think those numbers may be reversed.
     
  20. tylerdurden

    tylerdurden Senior Member
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    Or it could just be FUD made up to make Verizon look bad. Keep the "source" in mind.
     
  21. ILUVSOCAL

    ILUVSOCAL Banned
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    Rural area are primaraly Analog

    Not up here in rural Lake and Mendocino Counties in Northern California, we are all digital on Verizon. Sprint, by the way, doesn't even serve this area.
     
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  22. Guest

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    FYI Verizon just converted the large rural area north of Duluth, Minnesota reaching up to the Boundary Waters Canoe Area Wilderness to CDMA digital -- I checked because a) I have Verizon and am trying to decide whether to keep it and b) I have family up there and used to live up there for a while and I noticed a sudden expansion in their mobile to mobile coverage in that market, so I figured something was up. I called up Verizon, and they said they'd just converted, and I called up my relatives right afterwards and they confirmed it (they subscribe to Verizon, partly because the only other local choice is Dobson Cellular One with a not-very-well-situated tower -- their local Dobson TDMA tower is actually attached to the mast of the local FM radio station and does a great job within the town of Ely but quickly peters out in the countryside, whereas Verizon keeps going for 20 miles with the better handsets).

    Specifically, Verizon, for some time, had the Duluth-Superior area well covered with digital, along with Highway 53 north to about Britt, Virginia and Hibbing and Aurora and Hoyt Lakes, with CDMA signal just barely reaching towards Tower on Highway 169 before it petered out into analog. For example, two very tall Verizon masts (400-500 feet), one just east of Tower and the other just south of Ely, remained analog-only for two or three years after the core of the market converted to CDMA. Apparently those two towers have now added CDMA. This whole area (St Louis, Lake and Cook counties in Minnesota with Douglas county in Wisconsin) is a former Airtouch cellular market; with Dobson Cellular One as the other main carrier (except that Duluth has all the majors except AT&T). Dobson converted to TDMA in Ely in 1999 having already digitized the more populated areas, but Verizon held fast with analog in areas not populated enough to have four-lane highways, and didn't promise anything. A sort of equilibrium ensued where Dobson had the better performance if you were within two or three miles of their towers, whereas Verizon analog had by far the more extensive coverage out in the uninhabited tracts of forest you have to go through to get in and out of this area. Evidently, the dam finally broke, so to speak.

    I suspect a good way of keeping track of Verizon's in-house digital coverage is to review their national mobile-to-mobile maps on a regular basis; it looks to me, though I can't say with certainty, that the mobile-to-mobile areas are all digital. Of course, if you're on America's Choice and you're in, say, western Wisconsin along I-94 or US Highway 8, you're going to be routed to a Sprint PCS tower and you'll have digital but you won't have the mobile-to-mobile, so there are some digital coverage spots beyond the mobile to mobile area. What I don't know is whether any analog areas support mobile-to-mobile. Let's hope Verizon does not do to Sprint roaming in Minnesota and western Wisconsin what they have done in eastern Wisconsin and Chicago. They won't if they have any brains; unlike eastern Wisconsin and Chicago they don't have any other safety net in Minnesota with CDMA; no Alltel or US Celllular, just lots and lots of TDMA towers, and then Sprint.
     

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