Even with low prices, T-Mobile customers flee

Associated Press

NEW YORK

The Justice Department’s move to block AT&T Inc. from buying T-Mobile USA is motivated by the desire to keep a low-priced competitor in the game. But that’s a game T-Mobile is losing.

Despite low prices and a peppy pitchwoman in a polka-dot dress, T-Mobile customers have been fleeing to other carriers in the last year and a half.

T-Mobile’s 33.6 million customers may be relieved that the federal government is trying to block the merger, so they can keep their wireless service plans. But in the long run, T-Mobile is in an unsustainable position. Analysts say the company’s past decisions have painted it into a corner.

The No. 4 wireless carrier is being squeezed by competitors from two directions. At the high end of the market, it can’t compete with Verizon Wireless and AT&T Inc., the market leader and No. 2, respectively. At the low end, T-Mobile is struggling against competitors such as Sprint Nextel Corp., which sells government-subsidized “lifeline” service, and MetroPCS Holdings Corp., which targets urban, working-class consumers with cheap “unlimited” plans.

Essentially, T-Mobile is seen as a cheap brand by those who can afford better, and as an expensive one by those who pinch every penny.

“We’re stuck in the middle from a brand point of view,” T-Mobile CEO Philipp Humm said in January.

The most valuable customers, the ones who buy smartphones and sign up for two-year contracts with lucrative data plans, are leaving T-Mobile the fastest.

It’s not because T-Mobile’s customers are particularly dissatisfied with the service — they like their provider better than AT&T customers theirs, according to the American Customer Satisfaction Index.

Instead, the lure of the iPhone and wider network coverage is what draws high-paying customers to AT&T and Verizon.

So, even though T-Mobile is profitable, its revenue is shrinking fast — in the latest quarter, it was down to the level of 2007.

Customer flight could speed up even more this fall, if Sprint gets to start selling the iPhone, as The Wall Street Journal reported recently. That would make T-Mobile the only one of the four national wireless carriers that doesn’t sell Apple Inc.’s coveted phone.