Analysis: T-Mobile USA has done right but may be sold by parent wanting more

Given everything T-Mobile USA has done right -- launching cool new smartphones, 3G wireless network upgrades, hot marketing, and low-cost pricing plans -- some experts wonder why its parent company may be considering spinning it off .

It seems to come down to the fact that its German parent, Deutsche Telekom, is conservative and risk-averse, mirroring the philosophy of its biggest shareholder, the government of Germany, which controls about 30% of the company.

"Because of that government control, they don't want to play around and they want to get money for their investments and show some return," said Will Stofega, an analyst at IDC.

Deutsche Telekom is reported to be exploring an initial public offering, spin-off or merger with a rival of its U.S. unit, but the German carrier and T-Mobile USA won't comment on the report, which cited unnamed sources.

T-Mobile has about 33 million customers in the U.S., and is No. 4 in the country's wireless market, with about 14% market share behind No. 1, Verizon Wireless, No. 2, AT&T and No. 3, Sprint Nextel.

Despite all its good qualities, T-Mobile did report losing 77,000 wireless customers in the third quarter of 2009, about the same time Verizon and AT&T were each adding millions of customers.

If T-Mobile is not growing, it is hard to justify spending millions of dollars on 3G network upgrades and subsidies for new smartphones, analysts said. "This business is very cash intensive, making it difficult to bid for top handsets and it takes cash to bring customers good networks," Stofega said.

T-Mobile said in January that it had finished rolling out a faster 3G network specification called HSPA 7.2 to 200 million people in the U.S., after more than a year of development.

However, Stofega said is still a widespread perception that T-Mobile has an "inferior network" at the same time that T-Mobile "is certainly facing big guns in Verizon, AT&T and, for that matter, Sprint."

T-Mobile's network upgrade might have come too late to help, said one independent analyst, Jeff Kagan. "They are rushing to catch up ... with AT&T, Verizon or Sprint," he said. "Their speeds are not as fast in as many places."

Kagan said that T-Mobile focused too long on offering cheap wireless phone calling, instead of fast wireless Web connections, after being created in 2001 when Deutsche Telekom purchased VoiceStream Wireless.

"As the marketplace continues to change toward smartphone functionality, that's where the pressure is for T-Mobile," Kagan said.

Even so, T-Mobile introduced hot new smartphones, including the first Android smartphone, the G1 , in late 2008, and Motorola's first Android phone, the Cliq .

Early this year, Google launched its Nexus One with service provided by T-Mobile. With the hyped launch, however, the spotlight was on Google , HTC and the fact it was being sold unlocked, which left T-Mobile Uas an "afterthought," Stofega said.

Stofega said that T-Mobile has also walled itself in because its has no true enterprise wireless business or a wired subscriber base to fall back upon as their larger competitors have had.

In June 2008, T-Mobile introduced landline-like services with its @Home VoIP service, which for $10-15 a month provides customers with unlimited domestic calling. The company said last month that service would no longer be available for new customers but that current customers would not be cut off.

While Stofega reasoned that T-Mobile's marketing dollars have probably been a fraction of Verizon's, he said T-Mobile tried to push the hip-ness factor effectively with actress Catherine Zeta-Jones, and should have benefited some from Paris Hilton's widely reported use of a hacked Sidekick , a favorite device of young users on T-Mobile's network.

"It's obvious sex-appeal just isn't working for them, even with the associations of the Sidekick and Paris Hilton giving them bling," Stofega said.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld . Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed@matthamblen or subscribe to . His e-mail address is .

Read more about mobile and wireless in Computerworld's Mobile and Wireless Knowledge Center.

This story, "Analysis: T-Mobile USA has done right but may be sold by parent wanting more" was originally published by Computerworld.

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