T-Mobile USA Inc. will begin selling the iPhone 5 for the first time on April 12, letting customers buy the Apple Inc. (AAPL:US) device via an installment plan aimed at challenging the industry’s typical long-term contracts.
Qualifying buyers can get the phone for $99.99 down, plus monthly payments of $20, T-Mobile said yesterday at an event in New York. Service for the phone starts at $50 per month for unlimited calls and 500 megabytes of data.
The approach, part of what T-Mobile calls its “uncarrier” strategy, is a break from the practice of subsidizing smartphones in return for two-year contracts. By not relying on heavy phone discounts, T-Mobile says it can offer less burdensome terms and lower service prices.
“Our goal is to give customers the lowest out-of-pocket cost of anyone in the industry,” T-Mobile Chief Executive Officer John Legere said in an interview. “We’ll see how the competition responds. I don’t think the math is going to work out for them.”
T-Mobile is trying to stand out from Verizon Wireless and AT&T Inc. (T), the U.S. industry’s two largest competitors, which sell smartphones below cost to lock customers into contracts. T- Mobile, ranked fourth, is counting on the plan to reverse a customer exodus. The company, owned by German phone carrier Deutsche Telekom AG (DTE), lost 2.1 million monthly contract subscribers last year.
Deutsche Telekom dropped 1.6 percent to 8.21 euros at the close in Frankfurt.
T-Mobile also is playing catch-up with its larger rivals in rolling out a network with long-term evolution, or LTE, technology. As part of a $4 billion investment plan, the company said yesterday that it has begun offering the speedier standard in seven areas: Baltimore; Houston; Kansas City, Missouri; Las Vegas; Phoenix; San Jose, California; and Washington. Verizon, meanwhile, has LTE in more than 485 cities.
By calling itself as the “uncarrier,” T-Mobile is taking a page from 7-Up, the citrus soft drink that distinguished itself from Coke and Pepsi by calling it the “uncola” in the 1970s and ’80s.
Legere, who became CEO in September, has brought a combative style to the company and touts his lack of history in the carrier business. During an event in January, he called AT&T’s network “crap,” taking aim at a company that was poised to buy T-Mobile in 2011. AT&T walked away from the $39 billion deal after regulators raised concerns about its impact on competition.
To help it compete, T-Mobile now has its own deal pending: a merger with the fifth-largest carrier, MetroPCS Communications Inc. (PCS) MetroPCS investors will vote on the proposal on April 12.
‘Greedy Hedge Funds’
Legere said yesterday that he’s confident the deal will be completed, throwing out a jab at Paulson & Co. and P. Schoenfeld Asset Management, two of the larger MetroPCS shareholders that have opposed the terms of the merger. They have expressed concern that the transaction undervalues MetroPCS and would load the company with too much debt.
“It will be approved, despite the greedy hedge funds,” Legere said. “I’m confident because it makes huge sense. And the alternatives for MetroPCS are a bit fictitious.”
P. Schoenfeld Asset Management, a New York-based firm, responded to the remarks by saying it was protecting the interests of MetroPCS shareholders and “will not be distracted from this goal despite numerous attempts made by MetroPCS’s board, T-Mobile and its parent Deutsche Telekom to deflect focus from the important matters at hand.”
The firm said it’s voting against the deal “because we believe that PCS as a stand-alone company will achieve greater value for its shareholders than the proposed T-Mobile transaction.”
In a statement, Paulson & Co. said Legere is looking out for the interests of Deutsche Telekom shareholders, not MetroPCS investors. The deal would saddle the new company with $15 billion in debt at above-market rates, Paulson & Co. said.
“If anyone is being greedy here, it is Deutsche Telekom,” the firm said.
Legere said the addition of the iPhone -- the top-selling smartphone in the U.S. -- will help end customer losses in 2014. T-Mobile is the last major U.S. carrier to begin selling the device, following AT&T, Verizon and Sprint Nextel Corp.
T-Mobile also is offering BlackBerry’s new Z10 using a similar installment plan. And it will begin selling Samsung Electronics Co.’s Galaxy S4 on May 1.
If shareholders approve the MetroPCS merger, it could be completed on that same date, Legere said in a separate interview on “Bloomberg West.” The new company will trade under the ticker TMUS, he said.
“As consolidation takes place, the combined T- Mobile/MetroPCS will be in a good position,” he said.
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