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T-Mobile USA eyes growth from iPhone, marketing changes

A sign of the new iPhone 5 is seen at the entrance of an Apple Store in the financial district of Pudong in Shanghai December 14, 2012. REUT
A sign of the new iPhone 5 is seen at the entrance of an Apple Store in the financial district of Pudong in Shanghai December 14, 2012. REUT

By Sinead Carew

NEW YORK (Reuters) - T-Mobile USA said on Tuesday that it will start selling Apple Inc's iPhone on April 12, making it the last of the big national U.S. operators to sell the popular smartphone.

The No. 4 U.S. mobile provider, which is seeking to merge with smaller rival MetroPCS Communications, is hoping the device can help stem customer losses. The launch follows a marketing overhaul that eliminates device subsidies and two-year service contracts favored by its bigger rivals.

T-Mobile, a unit of Deutsche Telekom AG, hopes its new approach will differentiate it from bigger rivals that already sell the iPhone: Sprint Nextel, AT&T Inc and Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc.

The company, which struggles with customer defections, hopes to attract cost-conscious consumers through an aggressive marketing campaign that focuses on its lack of service contracts and clearly outlines the monthly cost to consumers to own devices such as the iPhone.

U.S. operators have traditionally subsidized phones in exchange for tying customers into contracts but do not disclose how much of their monthly charges covers the device, a practice that T-Mobile USA criticized as lacking transparency.

"The industry's broken," T-Mobile Chief Executive John Legere said at a press event to announce the iPhone launch and discuss the service plans, which he promised late last year.

In particular, T-Mobile USA is taking aim at No. 2 U.S. operator AT&T because the two companies use the same network technology, making it easier for consumers to bring their AT&T phones to T-Mobile's network.

Legere estimated that T-Mobile customers would pay about $1,000 less over two years than they would for roughly comparable services at AT&T. T-Mobile's website also directly compares its pricing to AT&T's service fees.

However, AT&T appeared unfazed by the campaign. Spokesman Mark Siegel's response was: "Whatever."

Legere said that the iPhone and the new marketing plans will help the company stem its losses of bill-paying customers this year and create growth in this segment in 2014. The company, which ended 2012 with 33.4 million customers, lost 515,000 contract customers in the fourth quarter.

"You'll see discernable progress each quarter," the executive told Reuters, promising significant improvement in first quarter from the fourth quarter and second quarter numbers that are significantly better than the first quarter.

T-Mobile will offer the iPhone 5, Apple's latest model, for an upfront payment of $99.99 followed by 24 monthly payments of $20, adding up to $580 over two years. Its rivals charge $200 upfront to customers who sign a two-year contract, but customers who do not sign a contract pay about $650.

Slight differences in operators' service plans make comparison of total costs for consumers difficult, but analysts said that T-Mobile's offer does appear to be cheaper than those of its bigger rivals.

Reticle Research analyst Ross Rubin said it was still unclear whether consumers have as much disdain for contracts as T-Mobile hopes. But he said consumers will likely find the lower upfront cost for phones attractive and that the addition of the iPhone should help T-Mobile retain customers.

"Not having the iPhone 5 was certainly a big hole in its portfolio," Rubin said.

T-Mobile said it will sell the older iPhone 4 for a $69 up-front payment and a commitment to pay $20 a month for two years. It also promised smaller upfront fees for the latest smartphones from BlackBerry and HTC Corp.

Bigger rivals AT&T and Verizon have said they would closely watch T-Mobile's new service model and that they could follow suit if it proves popular with consumers.

Andrew Sherrard, T-Mobile's senior vice president of marketing, said the company would significantly increase its marketing spending, but he declined to give details.

T-Mobile also said on Tuesday that it had upgraded its network with faster data services in seven markets using the Long Term Evolution (LTE) technology that its bigger rivals have a head start in delivering.

T-Mobile promised to offer LTE in markets with a population of 100 million by mid-year and expects to broaden coverage to 200 million by year end.

One key element of Legere's strategy involves the proposed merger with MetroPCS, which needs shareholder approval at a special meeting on April 12, the date of T-Mobile's iPhone launch.

Two large activist shareholders, Paulson & Co Inc and P. Schoenfeld Asset Management, are campaigning to block the deal due to the level of debt that the combined company will have on its books. But Legere insisted the merger would go through.

"It will be approved despite ... several greedy hedge funds that are trying to take a double-dip out of that process," Legere said.

(Reporting by Sinead Carew; Editing by David Gregorio, Leslie Adler, Richard Chang and Steve Orlofsky)

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