| NEW YORK
NEW YORK Feb 23 T-Mobile USA Chief
Executive Philipp Humm faces massive hurdles as he tries once
again to get the customer-losing wireless service back on track
after the failure of its proposed merger with AT&T Inc
Humm plans to pump up spending on technology and advertising
and is eyeing structural changes to raise capital, but it is not
clear that this will be enough.
The executive needs to reverse customer losses exacerbated
by the nine months of distraction when his parent company
Deutsche Telekom sought approval for the failed $39
billion sale to AT&T. Moreover, he has to do this with a
spectrum shortage and a network that is years behind those of
Humm plans to invest $1.4 billion and reallocate spectrum in
order to upgrade T-Mobile's service in 2013 with LTE, a
high-speed wireless technology. This year he is spending $200
million to rebrand the service to win back customers.
"2012 and 2013 will be the big rebuilding years," Humm told
Reuters. "We expect that to pay out big time after this."
But analysts question whether T-Mobile USA can ever catch up
since its biggest rival, Verizon Wireless, started offering LTE
services in late 2010, followed by AT&T last year. Another big
rival, Sprint Nextel, starts its LTE service this year.
"T-Mobile will be late to the LTE party, and its coverage
will lag its major competitors for some time," said Ovum analyst
T-Mobile USA's network has been a headache for its parent
company Deutsche Telekom for several years. In 2009 it sought
out a U.S. partner to help it invest in network upgrades but by
the next year it had abandoned that strategy and said it would
look at other options like an initial public offer once it had
strengthened the business.
With this in mind it appointed Humm, a former McKinsey
consultant with a reputation as a restructuring expert, in May
2010. But Humm never really had the chance to get started.
Just two months after he presented a U.S. strategy to
investors in New York in January 2011, the company announced its
doomed plan to sell the unit to AT&T. That deal was ditched in
late December, bringing T-Mobile USA back to square one.
MOUNTAIN OF OBSTACLES
Last month Humm again promised a strategy to rebuild the
company. Now he is at pains to convince investors that his plan,
announced on Thursday, will work as obstacles keep piling up.
Along with having an older network Humm also has to contend
with heavy smartphone competition as T-Mobile USA is the only
one of the top four U.S. operators which does not sell the Apple
T-Mobile USA blamed the iPhone for its loss of 706,000
contract customers in the fourth quarter alone. Humm said on
Thursday that he would like to sell the iPhone, if Apple would
only agree to his terms. But for now, the executive said he will
stick to selling other smartphones.
Since AT&T, Verizon Wireless and Sprint all had to accept
costly terms with Apple, taking heavy hits to their profits from
hefty subsidies to Apple, it would be surprising if their
smaller rival could get a more favorable agreement.
Also, Roe Equity Research analyst Kevin Roe said an iPhone
would come with too much financial pressure for the operator,
which is already increasing spending on its network.
"It would be very difficult to absorb (the iPhone) dilution
given how much the business has shrunk and how low margins
already are," Roe said.
Meanwhile, Humm is focusing investments on growth in areas
such as business services. He is tripling the company's business
sales force with 1,000 new employees. The idea is that selling
to businesses, which are more loyal than consumers, would help
reduce customer cancellations.
He also plans a rebranding in the third quarter to highlight
the company's focus on "value" services but, since T-Mobile USA
is already seen as one of the best value services in the U.S.
market, analysts questioned how this would help.
"It's not like it's a new message. It's been their message
all along," said Piper Jaffray analyst Christopher Larsen who
noted that Sprint is also considered a good option for cost
In fact, one of T-Mobile USA's current problems has come
from smaller rivals like Leap Wireless and MetroPCS
Communications, which both also specialize in appealing
to cost-conscious customers.
"The absence of the iPhone, relatively poor network coverage
and the influx of smaller carriers taking over T-Mobile's core
customer base of young people looking for cheap service have all
hurt it," Ovum's Dawson said.
Humm is also looking at "structural options" to help raise
capital for the company with an aim to making it financially
independent of its German parent. But he declined to give
details or a timeframe for a decision in this area.
Options would involve raising new capital independently of
its parent, but Humm would not say how. He told reporters that
the company could use more capital to buy new spectrum as its
current holdings are not enough for the LTE capacity the company
would like to offer.
The quest for financial independence is due, in large part,
to the fact that Deutsche Telekom's focus on handing out
dividends to its shareholders comes before its willingness to
make the heavy investments needed to turn around T-Mobile USA.
As it is, the unit, which ranks No. 4 in the U.S. market,
will already weigh on Deutsche Telekom's results for the rest of
Deutsche Telekom acquired T-Mobile USA in 2001 in a bold and
controversial move by Ron Sommer, the German company's
charismatic chief executive at the time.
The purchase of the company, then known as VoiceStream, was
criticized at the time for being too expensive but turned into a
key growth driver for the German company for several years.
But once the U.S. wireless market became more heavily
saturated, it became tougher for T-Mobile USA to keep up with
bigger rivals and fend off smaller competitors.
Humm is taking the right steps to improve the business,
according to the Roe Equity Research analyst, but he questioned
whether Humm's 2-year rebuilding plan will still leave him
chasing far behind rivals.
"While they're resuming a competitive posture the rest of
the market place is not standing still," Roe said.