Will T-Mobile Overtake Sprint?
Now that Sprint and T-Mobile have called off merger plans, T-Mobile's outspoken CEO John Legere has made it very clear he sees his one-time potential partner as the next target to take down.
The chief executive, who never tires of tweaking his competition on Twitter , used the social media site to share his goal for T-Mobile, which is to overtake Sprint and become the No. 3 wireless carrier in the U.S.
Legere punctuated his tweets with the hashtag #OvertakeSprint. The tweet below is one of many using that tag Legere has posted, but it's typical of his sentiment.
- John Legere (@JohnLegere) August 7, 2014
Legere may be a bit of a blowhard, but his company has been rising steadily while Sprint has moved mostly in the opposite direction. Not merging may make Legere's goal of catching up to wireless phone leaders AT&T and Verizon a distant dream, but passing Sprint is not only possible, it's probable.
Where do the two companies stand?
In terms of subscribers, T-Mobile had more than 50 million at the end of the second quarter, up from 44 million a year earlier. Sprint had 54 million subscribers at the end of the second quarter. The key difference is that T-Mobile has added more than 1 million new subscribers in each of the past five quarters, while Sprint's user base has grown anemically -- or declined -- in most quarters. In the second quarter of 2014, Sprint lost 220,000 subscribers. The company posted a slight gain in 2013. However, Sprint has had success with its Framily plan, and it may be turning a corner.
Why is T-Mobile Gaining?
Legere may be full of bluster, but his company has backed that swagger with lower prices, more transparent billing, and constant innovation. T-Mobile's "Un-Carrier" strategy brands the company as being different than its competitors. When your industry is disliked by the public, that's a sound plan.
But it hasn't been all talk on T-Mobile's part. Legere has simplified billing while making radical moves like offering streaming music that does not count against data caps. He also has T-Mobile paying early termination fees for customers fleeing another carrier, which removes a major barrier to entry.
While Sprint has had some success with its Framily Plan -- an offering that delivers lower prices if friends and family join along with you -- it's overly complicated compared to how T-Mobile prices its offerings. In an industry where surcharges and mysterious costs are the norm, Legere has eliminated data overages and made every effort to not offer complicated pricing schemes -- which Framily certainly is.
Legere calls out his competitors in an industry that has always operated under an implied collusion. This has forced lower prices across all carriers and sent customers flocking to T-Mobile.
Can Sprint turn it around?
Sprint Chairman Masayoshi Son did not hide the fact that one of the reasons he pursued a merger with T-Mobile was that he wanted Legere to run the combined company. He never expressed similar affection for Sprint CEO Dan Hesse, and as soon as the merger fell apart, Son replaced Hesse with Marcelo Claure -- an outspoken leader who has been compared to Legere. Claure may be the right man for the job, taking over at a time when the worst is behind Sprint and the failings of AT&T and Verizon leave plenty of room for two competing upstarts.
The Sprint chairman praised Claure's "management experience, passion, and drive to create the strongest network and offer the best products and services in the wireless industry."
Though he praised Hesse for his leadership as he booted him out the door, the statement was clear: If Sprint can't buy T-Mobile, it needs a leader who can fight bluster with bluster.
Will T-Mobile overtake Sprint?
While the worst may be behind Sprint, it needs more than Framily to slow T-Mobile's momentum or gain much of its own. But with 4 million subscribers between the two, simply having a quarter where it doesn't lose customers would go a long way toward keeping Sprint at No. 3.
In the short-term, T-Mobile should keep gaining. But it's unlikely to make up 4 million subscribers in the next quarter. T-Mobile added 4.4 million subscribers in 2013, while Sprint gained about a half million. If those numbers hold steady for the next 12 months, then the two companies would be essentially tied. It seems likely that T-Mobile will keep moving forward at a similar pace, since its growth has been steady for almost two years.
What will happen with Sprint is a wild card. Past results have been bleak, but a new CEO and any momentum built up around Framily could help it hold off T-Mobile for the next year.
Legere, however, is unlikely to stand pat. While his past efforts have mostly focused on winning customers from AT&T and Verizon, if he specifically targets Sprint -- as he appears willing to do -- he may be able to move the numbers by adding customers at Sprint's expense. It's hard to bet against Legere, given his track record. At some point, it seems likely that T-Mobile will become the No. 3 wireless carrier in the U.S., but Claure still has time to stop that from happening.
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The article Will T-Mobile Overtake Sprint? originally appeared on Fool.com.
Daniel Kline has no position in any stocks mentioned. He is a reluctant Sprint customer of many years. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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