An Open Letter to John Legere: 33,000 net-deactivations in Q2? How?

By James Brehm July 30, 2015

In the last 24 hours, we have had countless people asking, “What in the world is going on at T-Mobile?” This is in response to T-Mobile’s early press release of its Q2 results, which reported a loss of over 30,000 machine-to-machine (M2M) connections.

To be fair, we are also a bit confused. In a time when private equity firms are rolling up M2M MVNOs, enterprise software companies are paying huge multiples for connectivity enablement platforms, enterprises are searching for ways to launch connected products, partnership press releases are more prevalent than pollen in the air, and hockey stick growth projections are the norm, a net loss of 33,000 machine-to-machine subscribers by a mobile network operator is simply astounding.

Over the past few weeks, other organizations have released their quarterly IoT and M2M growth figures. For example, Verizon internet of things (IoT) revenue was reportedly up $10M quarter over quarter, while AT&T reported net additions to its M2M and IoT business of 1.48 million.

What’s more, we expect that when Sprint announces, they will show another strong quarter, having had over 800,000 net additions, two (2) quarters in a row.

So, how does a company show a net loss of subscribers in a high growth market?

I personally know three people in key roles within the T-Mobile USA M2M division and they are not only great guys, but hard working and incredibly competent.

Their business development managers are seasoned professionals. They are people who understand the industry, who know what their clients need, and are able to articulate the value proposition clearly.

Their partnership managers have good relationships with some of what we would consider to be best-of-breed companies.

And the guy leading the M2M division has a vision of how to get things done.

Then what is it that seems to be keeping T-Mobile from achieving success?

I started looking closely at T-Mobile’s M2M group about 5 years ago. At that time, they were executing. They had inked some very good customers, created wholesale and direct channels, and had an outspoken and dynamic leader running M2M. Compared to most of their contemporaries, they were right in line.

Net customer additions (net adds) were happening quarter after quarter, the team worked well together, yet something appeared to be off kilter. While its competitors were investing in platforms (AT&T was investing in Enterprise On Demand and AT&T Control Center powered by Jasper, Verizon had entered into an agreement with nPhase—later purchasing the company, and Sprint was partnering with Aeris to develop Sprint Command Center) the team at T-Mobile was relying on a homegrown solution to manage customer activations and suspensions.

The other carriers looked outside their companies for expertise in controlling customer endpoints because their internal development teams were already overburdened with network infrastructure and other operational updates. But T-Mobile USA was relying on their internal IT organization, hoping parent Deutsche Telekom would produce/develop a Global solution. And, while a global solution probably was needed by DT—and still is—DT executives were trying to figure out how to offload the US business.

Image via Shutterstock

Then a major change happened at T-Mobile: National sales director of M2M, John Horn accepted a position with RACO Wireless as President. RACO, a long time T-Mobile partner had seen what could be considered a lack of focus from T-Mobile executive leadership and decided to have Horn build a team whereby RACO experienced a meteoric rise from a small T-Mobile partner to a top tier, multi-million connection MVNO and platform of choice for T-Mobile.

After that happened, most of T-Mobile’s sales staff left for other positions; some with Horn, others with other T-Mobile partners. And those partners, such as RACO, Wyless, Jazz Wireless, and Aeris, essentially became the T-Mobile growth engine, while T-Mobile internally was left with a skeleton crew that seemingly kept the lights on for a couple of years. During that time, while AT&T and Verizon added millions of subscribers, T-Mobile struggled at the mercy of RACO and Wyless—two companies that were too underfunded to compete head to head with other major carriers.

Then the bottom dropped out of the partnership world for T-Mobile. Jazz and RACO were both acquired by Kore, and Wyless executives decided to part ways with president and catalyst for sales, Dan McDuffie, and put themselves up on the open market. As a result, the focus at Wyless is now about tightening up the books and showing a strong EBIDTA position, so early investors can share in the rewards of the current acquisition frenzy. Meanwhile, there have been rumblings of T-Mobile re-orgs and a renewed focus, yet it wasn’t as fruitful as expected.

T-Mobile has spent billions on advertising to secure high-dollar, low-margin, high-churn smartphone subscribers, other carriers have figured out the equation. It’s not about being number 3, it’s about $/Khz and monetizing the investment in spectrum; one of the best ways to do that is to instead focus on high-margin, low-churn M2M customers.

Though CEO John Legere has done many crazy things to inspire the rank and file at T-Mobile, there is a lack of balance between consumer and enterprise business. Enterprise M2M business doesn’t require the steep spending that consumer net-adds do. The cost of subscriber acquisition is a fraction and the lifetime value (LTV) of a large M2M deployment is incredible. 

Just ask U.S. Cellular, it’s just about to launch its formal M2M program. Why? Because customers want it. In today’s market, where companies are begging for M2M connectivity, it is confusing to see a tier-1 carrier with a net-decline for the quarter.

So John, if you’re reading this…really do something radical. Jump into M2M headfirst. Create unique partner programs. Build and incentivize a world class sales organization. Use machine connections as the first step, and then provide analytics and insight around the machine data that is transmitted across the network, instead of ending contracts that could be hazardous in a price war. Until that happens, T-Mobile really is the “Un-carrier”. 

Edited by Maurice Nagle

Founding Analyst and Chief Technology Evangelist

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