LAS VEGAS — T-Mobile announced its latest “Un-Carrier” initiative here Thursday, announcing plans to include taxes and fees in the rates it promises customers, and return up to $10/month to customers who use less than 2 GB of data per month on T-Mobile One unlimited plans.
After the announcement, GeekWire sat down with COO Mike Sievert and CTO Neville Ray about the motivation for the latest moves, competition with AT&T and Sprint, plans to further expand T-Mobile’s LTE network, the future of the FCC under Donald Trump, and the potential benefits of a future merger with another wireless carrier such as Sprint.
Continue reading for edited excerpts from the conversation.
Todd Bishop: How much do you think billing will be a motivator for switchers? Because it’s not the sexiest topic. It’s not, “Oh, hey I get my music without charging against my data,” for example. How much interest is billing going to generate for customers?
Mike Sievert: A ton. We think customers are fed up. Basically the whole thing seems like a shell game to people that there are literally 83 ways to buy post-paid wireless from AT&T and Verizon. As I said earlier, we beam invisible bits from here to over there and back. You don’t need 83 ways to pay for that. There’s a reason there’s 83 ways to pay for that, it’s so you’ll pick the wrong way and get sub-optimized. Guess too low and you get slammed with overages, guess too high and you get your data confiscated. You overbought and then they take it from you 30 or 60 days later. People are fed up with this. In our case, like many of our Un-Carrier moves, some of the things that we do that we eliminate, we used to do. Today, a third of our calls or questions in customer care are about billing.
TB: Oh, really?
Sievert: A third. I mean, “I don’t understand my bill. Could you explain this? I’m not sure I agree with that. What about this? How about … you know, I’m confused.” And so on. There’s a huge opportunity for us to streamline and simplify things. A big thing that’s changed since we began this journey, and we talked about it earlier, is that the mobile internet is the internet now. It’s been since the ’90s for god sakes that we’ve had to buy wireline data by the bit and the byte and the hour and so on. It was when America Online cancelled that hourly thing, what was that ’97 or something? That’s a long time ago.
There’s a reason why we still have rate plans. Rate plans are relics. They’re done, they’re over, but we still have them because they serve the greedy interests of the establishment. Of AT&T and Verizon. We’re here to put a stop to all of it. Part of what simplicity means is putting something out there and saying, “Look, when I tell you it’s going to be $40 I mean 40 dollars and zero cents.” You don’t have to memorize that because when it comes on your bill it’s 40 dollars and zero cents, there’s nothing hidden.
We want the bill to fit on one screen of a smartphone. Today a typical Verizon bill is 13-15 pages long so they can slam in all those charges that we talked about earlier. To us, the trust between the industry and the consumer is eroded by all this stuff and people are totally fed up with it. We think it ought to be a simple monthly subscription to the internet.
TB: I’ve got my T-Mobile bill on my phone right here. Let’s see, how many pages … One, two, three, four pages.
Sievert: We are inspired by industry practices, some of which, until we end them, we also do. For example, you were there when we ended contracts. The day before 100 percent of our customers were on contracts. We said, “This is crazy!” Well, yesterday everybody got charged taxes and fees and had long bills and you slid all that stuff in there because that was a long established industry practice. But we’re always inspired as the Un-Carrier by what people want.
TB: As a customer, switching to the billing with no fees or taxes, is there a scenario where my bill goes down because now the fees are included in the rate that I originally agreed to?
Sievert: Yeah. Big time.
TB: Okay. I’ve got the federal universal fund, the utility use, state and local taxes.
Sievert: Yep. Gone, gone, gone, gone, gone.
TB: That’s like ten bucks a month that I’m paying.
Sievert: Yep. Exactly.
TB: Does that mean my bill could go down by as much as $10 a month?
Sievert: Exactly. Are you on T-Mobile One yet? … When you’re on T-Mobile One we’re talking all those charges away. … We think eventually virtually every customer will switch to T-Mobile One.
KickBack Data Program
TB: So for the KickBack, what are the financial implications of that for the company? Because I imagine quite a bit of those, especially secondary lines are under 2GB.
Sievert: Well these things that we do are all pretty big, bold, arguably costly things. This is a big one. This is big. Not just the KickBack but the taxes and fees included. We’ve had twelve prior big Un-Carrier moves and we’ve got the experience now to understand how to make sure we can do it sustainably and be able to profitably grow our company’s revenues and cash-flows and profits. The business case for this one is fairly simple, which is we think more people are going to pick T-Mobile and bring their profitable business to us and we think people who are here are going to stay more. Stay longer. Those two things together should make up for the big investment that we’re making in simplification for our customers.
TB: Do you have percentages offhand of how many of your lines are under 2GB?
Sievert: We have very detailed business cases because we have to convince ourselves before doing something this bold, that it’s going to be [net present value] positive.
TB: What percentage of your lines are under 2GB/month?
Sievert: 2GB is under our average. Let me put it to you this way. Before today, before we announced KickBack and everything that went with today’s announcement, almost 85 percent of our daily sales are on T-Mobile One, picking unlimited service. Only a fraction were picking something with a limited data bucket and some of those even were 6GB and 10GB. Very few people right now are picking, are actually choosing a 2GB data plan. At T-Mobile, our customers use three times more music, two times more video, and 50 percent more data on average than the industry. Our customers love data. Why? Because Neville has built a network that’s not choked like the competitors are.
Neville Ray: Big wide streetway.
Sievert: That shows you that this is something that is around the margin. We believe that T-Mobile One is the right offer for everybody but before we could grandfather Simple Choice we had to have way for people who do, even though it’s the exception, who do have lightly used accounts to say “T-Mobile One’s also for me”. It’s totally different from picking a rate plan because in a rate plan you have to pick in advance. This is just pick T-Mobile One and if you wind up with less than 2GB on your account, we got you. You don’t have to worry about it. It allows us to make sure T-Mobile One serves the need of everybody, not just 85 percent.
TB: Okay. Understood. Since the switch to unlimited, what have been the network impacts? What have you seen?
Ray: Obviously we’ve seen tremendous growth on the network. Year on year 16 was about 45 maybe 50 percent but prior years we’ve seen doubling of network load. The number of customers enjoying a really rich data experience … I mean, just organic growth rate has doubled in the last four years. So we’ve had massive organic growth and then per customer usage has increased. … The data’s coming on, we have a lot of runway in terms of our ability to support that. My job is stay out in front of Mike just enough. So far so good, right? I mean, we’re there.
Speed and performance is getting faster. A lot of that is down to the work we’re doing to enhance the radio, to enhance LTE, enhance the handsets. We’ve been the first guys to introduce a ton of new features and capabilities. A big piece for us … The first that I’m claiming is that we’ll be the first all LTE network and we’re going to have a little slice of GSM to take care of our end to end guys. I don’t want to piss them off, that’s gonna be bad. But the network is essentially going to be all LTE. The main path there is you do your voice service on LTE, and that’s fairly new, but we have a global leading in a position on that. 64 percent of the calls on the network are on VoLTE. Nobody else is close to that in the U.S., anywhere near close.
Why is that important? They have a ton of spectrum which is stuck in 2G and 3G technologies to support use on the network. 92 percent of the data today is on LTE. You want everything on LTE because it’s way more efficient than older legacy stuff. I’m moving as fast as I can to re-farm spectrum, push everything to LTE, rich communications services, integrated video dialing, enhanced voice services. All these capabilities to give you a really rich experience on the phone, on the IP layer on LTE. Driving that efficiency is key to our success. Not just what we’ve done but what we do going forward. The best proxy to say we’re delivering it today is that speed measurement. We’re very proud.
Looking forward to ‘lighter touch’ regulations
TB: John Legere addressed this briefly a couple times during the Q&A — what would would you like to see changed at the FCC?
Ray: The FCC? I think we’re encouraged about maybe a lighter touch regulatory environment, and I think that positive for the industry. I think we’ve been … Much of what the FCC’s role is is to enhance and protect the consumer. You look at the 12 moves we’ve made, another one today, that it’s all about consumer transparency.
TB: Couldn’t relaxed regulations open the door for abuse by Verizon or AT&T or you?
Ray: Won’t be us. I think our track record proves itself out today. I think the industry is going to continue to innovate at a great pace. I think there are opportunities that were maybe being cornered or closed down. Some of the privacy regulations were somewhat overbearing that were being thought about and I think that may be one of the first things that gets pushed back on. From a Net Neutrality, that kind of corner. You look at what we did on Binge On, what we’re doing with T-Mobile One. The first thing, and Mike you should riff off, but what comes out of all those things we’ve done is consumer choice. We’ve never done anything that does not give the consumer total choice on the types and services they want to consume.
Sievert: We’re very hopeful that a slightly lighter touch regulatory environment could help make sure that the pace of innovation stays up. By the way, Binge On was a major breakthrough and it does work under the current regulatory environment. That’s an accomplishment achieved. But we did have to work hard to figure out, to make sure that it would work.
Sievert: We think that we’re able to continue to move very quickly and change the rules of this industry. That’s going to be in the service of customers. Because we’ve been setting the pace. All these changes that have happened have been because T-Mobile started them. Whether it’s eliminating contracts or opening up global roaming or allowing people to upgrade their phones when they want … Making switching seamless so you can switch between carriers and not have to pay all those penalties because you were trapped into a family plan with differing expiration dates. We’ve ended so many industry practices, and we just want to make sure we can keep going at the pace we’re going because honestly there’s a lot of work left to be done to make this an industry that’s famous for being customer friendly.
Building a bigger network
Ray: We’ve been furiously expanding the reach of the T-Mobile network. When you think about where we’ve been historically, we’ve not been competing in a big part of the country. So a big part of our plan going forward is actually to bring distribution into many of those places, following on behind the network build. Competition … The business model innovation we’ve done is not available for a large number of Americans still. We’re going to hit more and more of them over the next, you know in ’17, ’18 and ’19.
I’ll give you an example. Our network doesn’t reach so we were in with [U.S. Sen. John] Thune in South Dakota talking to him and we finally … we put network up last year, we’re opening stores there now. He’s excitedly saying two things. One, competition is finally coming to his state. He’s one of the most active guys on the hill in terms of spectrum policy because he’s locked into an AT&T-Verizon world where the state demographic that can’t really afford those prices. His folks are coming to him all the time, “When is there going to be wireless competition? When can I see what T-Mobile has and the folks have in New York or Seattle? When does that come to the state of South Dakota?” The Dakotas, Montanas, you name it. The whole Midwest is suffering from this problem. Not all of it now.
Two things happen. One, we bring in the T-Mobile business model, like huge value, consumer friendly, transparency, all those things which many of those state demographics really want to see. Second piece is the competition comes in. Wireless networks start to perform, because the actual performance in many of those states is actually pretty poor compared to what you’ll see in major metros. (Other carriers) have to to step up to compete. So a big part of our plan is to get the magenta map, materially expand it. We’ve been competing in, what, less than two thirds of the country? To date, effectively. When you think about it in terms of our distribution footprint and so on. There’s a big pain point for millions of Americans out there that can’t get T-Mobile. They’re going to get the opportunity in ’17.
Sievert: Right now we sit at 313 million Americans covered by our network, LTE. And there’s only 324 million Americans so we’ve got the network there. We’re going to have 320 of 324 million covered by the end of this year. What Neville is talking about is expanding into a lot of the places where there really aren’t as many people but where you still need your phone to work.
TB: When you talk about the network expansion, would you like to have access to Sprint’s network? Would you like to see a merger from the network side?
Ray: From a network perspective, synergies that can come from combining two sets of fixes assets are meaningful. In the Sprint case, it could take some time to get to those, you know, to the synergies and the benefits.
TB: Because of the network characteristics?
Ray: You don’t need in every territory, for example, and they’re a big driver of cost and so on. For us I mean, there’s folks out there with spectrum, there’s folks out there that maybe want to move into the wireless space and they have some assets that would be very interesting to us in terms of fiber and so on. There’s a lot of different opportunities and the Sprint thing is … let’s see what comes.
TB: What about from the business side on that question, Mike … Do you see opportunities with Sprint, with SoftBank … Is there M&A activity on the horizon?
Sievert: I think our philosophy on that is completely unchanged. Which is, we’re running this company to grow it organically, but we’ve always been open to inorganic opportunities to accelerate this brand, this team and what we’re able to offer our customers. If there are capabilities out there that could really accelerate that or allow us to do it more efficiently, we’ve always been open to it. Nothing has changed there.
TB: Is that part of the regulatory picture too there that you’d like to see relaxed?
Sievert: It’s hard to say. It’s a little early to know. What I can say is that our company is in a position of real strength that you can see it in … We have 13 percent revenue growth when all three competitors are in decline. More than a 100 percent of all net ad growth in phones, the coveted customers everybody wants on the post-paid side, the only one growing post-paid and pre-paid which is critically important … It’s translating into financial results that have driven, for example, our equity value up 250 percent. Our cashflow is up nine times from last year, our EBITA up 35 percent. We’re in a position of real strength but we also know that this is a scale industry and if there are opportunities to add scale and it was going to be the right thing for our customers and our team and our brand … We’ve always been open to it.
Ray: We’re pretty good at it too. If you look at the story and the success with MetroPCS, that business has gone from, you know, it’s almost doubled in size inside four years.
Sievert: Yeah. MetroPCS is simultaneously the biggest and fastest and fasted growing pre-paid brand. That’s very difficult to do. And that was a CDMA network. Folks said oil and water, it will take you years to combine that and make that all work. All got done inside record pace, 18 to 24 months. We hardly lost a customer in the process. We expanded the reach of that brand nationally and it’s been a massive part of our success story. So we’re pretty good at shutting down CDMA networks.