How the iPhone crippled T-Mobile

Even if the feds prevent AT&T's takeover, T-Mobile is still dying -- and the iPhone is a big reason why

The Justice Department is suing to prevent AT&T's proposed acquisition of T-Mobile USA, saying the deal would raise prices and not help customers, despite AT&T's claims it would improve service by giving it more spectrum to deploy for 4G and 3G services. I never took AT&T's arguments seriously; it sits on a lot of unused spectrum despite its cries of bandwidth poverty, and the real issue on spectrum is that it is too carved up by carrier, geography, and technology, so it can't be used flexibly in a fast-changing world. I'd unify all the spectrum and lend it to carriers -- not exclusively license it as done today -- based on actual usage and demand, which would spur meaningful innovation and price competition.

Regardless of the larger issues, the immediate result of the federal action is to kill -- or at least significantly delay -- the buyout of T-Mobile by AT&T. T-Mobile customers can breathe a sigh of relief, as they're less likely to be absorbed into AT&T's world of bad service. But ultimately, T-Mobile is a dying company. Despite its slightly lower prices and a reasonable set of cellphones and Android smartphones, its contract-based customers are fleeing to Verizon Wireless, AT&T, and to a lesser extent Sprint, and its pay-as-you-go customers are looking more and more at the nation's fifth largest carrier, Metro PCS.

[ Don't be fooled by carriers' 4G promises. InfoWorld's Galen Gruman shows what's real -- and what's not -- about 4G today. | Keep up on key mobile developments and insights via Twitter and with the Mobile Edge blog and Mobilize newsletter. ]

The iPhone is a big reason T-Mobile is dying. And if Sprint gains the iPhone in October, as the Wall Street Journal has reported, it will die even faster. Android smartphone sales may be surging, but that hasn't helped T-Mobile. Neither has T-Mobile's fast adoption of HSPA+ networks, the 3G-plus network it misleadingly calls 4G (as does AT&T).

The iPhone and its very loyal customers are a big reason that AT&T has done well despite its poor reputation. Verizon has also fared nicely with the iPhone since it started selling the device in March. Sprint too will likely get a boost as it joins the ranks of "modern" carriers (despite the fact it already has a good selection of Android smartphones and actual 4G coverage available). Without the iPhone, T-Mobile will look like a loser to both potential and existing customers. Plus, iPhone owners are the kind of consumers desired by carriers: They commit to two-year plans repeatedly and thus are the economic bread and butter for each carrier -- the very type T-Mobile is losing faster than anyone else.

The iPhone is not the only reason T-Mobile is struggling, but I'd argue it's the biggest reason that affects customer behavior. T-Mobile's other problems are invisible to customers, but just as important to its long-term survival (or lack thereof).

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