T-Mobile Makes Huge Announcement..Is It Too Late?

Customers have been leaving T-Mobile USA, the country’s No. 4 cellphone company, for the last two years. Now that all three of the bigger carriers have the iPhone, that stream has turned into a flood.

The company on Thursday said it lost a net 526,000 subscribers in the fourth quarter. Worse, it lost a net 802,000 subscribers on contract-based plans, which are the most lucrative. That’s an unheard-of figure for an industry that was characterized by rapid growth for more than a decade.

T-Mobile, a Bellevue, Wash.-based subsidiary of Germany’s Deutsche Telekom AG, is now losing subscribers from contract-based plans faster than regular phone companies are losing landline customers.

Sprint Nextel Corp., the No. 3 carrier, started selling the iPhone in October, joining Verizon Wireless and AT&T Inc. in the “iPhone Club.” That coincided with the launch of the iPhone 4S, which propelled U.S. iPhone activations to a record 13.7 million over three months.

The iPhone helped Sprint post a rare increase in contract-based subscribers. Verizon and AT&T, the top two carriers, posted healthy increases as well.

It’s now clear that many of those new subscribers were coming from T-Mobile USA.

As the smallest of the four national carriers, T-Mobile was struggling even before all of its competitors had the iPhone. Its parent company has said it’s not interested in investing in it. Last year, Deutsche Telekom appeared to have found an exit strategy, in the shape of a sale to AT&T for $39 billion. But that deal was blocked by U.S. regulators, who said it would reduce competition.

T-Mobile’s CEO, Philipp Humm, on Thursday promised that the company will get back into the game through network upgrades. With the collapse of the deal, AT&T was forced to pay a break-up fee of $3 billion in cash and some spectrum licenses, so T-Mobile now has some room to maneuver.

Neville Ray, the company’s chief technology officer, said T-Mobile will start building a network using the new “LTE” wireless standard, which gives higher data speeds, and will have it operational next year. This upgrade is possible because of the spectrum from AT&T.

“Deutsche Telekom’s negotiators are looking savvy in retrospect as the stiff breakup fee they negotiated with AT&T looks tailor-made to fund their LTE deployment,” said Mike Roberts, an analyst at Informa Telecoms & Media. He added that T-Mobile still doesn’t have the “financial firepower” to keep up with Verizon and AT&T in network upgrades.

AT&T and Verizon Wireless already have LTE networks running, and Sprint has said it plans to set up its own network this year.

T-Mobile is investing $4 billion in the network upgrade, $1.4 billion more than it had planned earlier.

One reason T-Mobile has been at a disadvantage is that it came late to the “3G” party, and was stuck with deploying its first high-speed wireless network on a radio band that wasn’t used by other carriers for that purpose. That meant phones had to be specially made for T-Mobile’s network.

The network revamp will have the effect of harmonizing T-Mobile’s network with those of AT&T, Verizon Wireless, and international carriers. It will start providing high-speed wireless data in a band it has previously used mainly for calls. That band is compatible with many smartphones from other carriers. That means people with some phones, like iPhone 4Ss, could move over to T-Mobile when their contracts expire, or if they break their contracts.

CEO Humm reiterated that T-Mobile would like to sell the iPhone under the right terms. Compared to other smartphones, the phone is expensive, and the phone companies swallow that price increase to be able to sell it to their customers for $99 or $199.