Research Notes

AT&T’s takeover of T-Mobile USA is a classic example of mismanagement

The past few days a great deal has been said and written about AT&T’s purchase of T-Mobile in the USA. Here at Strand Consult we have been closely monitoring the global mobile market for many years and we have no doubt whatsoever that the primary reason why T-Mobile could not create a successful business in the USA can be found in Bonn. A great deal of the responsibility should be directed at Ron Sommer, who paid 35 billion USD in 2001 for VoiceStream and at Rene Obermann who was for a period responsible for the company’s daily operations, before being brought back to Germany to take over the role as CEO of Deutsche Telekom.

In this research note we will not focus on how much Deutsche Telekom has invested in T-Mobile USA, nor will we focus on the responsibility that various management teams and board of directors have had regarding the decisions that have been made and we will not focus on the fact that T-Mobile USA was the fourth largest player on a very large market with far less competition in the mobile area than on many other markets. In many ways the American mobile market is a rather peaceful business area.

Instead we will use this research note to illustrate what happens when companies become so large that they lose touch with the world outside. By reusing information from some of our older research notes, we will show that the changing management teams of a partially global market player like Deutsche Telekom were not taking advantage of the experience and knowledge they already had gained across international borders. We will show that many of the problems that T-Mobile was struggling with in the USA could have been eliminated if they had just been a little better at identifying and utilising the experience and information that they already had access to within their own international corporation.

The symptoms were very visible

If you have been following T-Mobile USA and the way they have been doing business as closely as we have, you too will have an image of an operator that has no grasp of the concept of having a differentiated strategy. In many ways, T-Mobile USA is a copy of their competitors and of T-Mobile in Germany. When we examined various business areas it appeared as if the many chief executives that have travelled between the USA and Germany had simply forgotten to take their previous experiences with them when boarding their transatlantic flights.

In addition we believe that T-Mobile USA suffered from inferiority complexes regarding their American competition and have therefore not utilised the financial advantages that GSM gives when competing against market players that use CDMA. On many other markets around the world – and especially in South America – it is very clear that many GSM/WCDMA operators have had no difficulty in competing with competing operators that were using CDMA. There are many advantages when selling GSM-based mobile services including roaming, easy reuse of mobile handsets and especially a far greater selection of mobile handsets that are most often significantly cheaper than corresponding CDMA mobile handsets.

When we examined the strategic choices that have been made by T-Mobile USA, we saw that they had not learnt from the experiences that T-Mobile already had gained on other markets. Examples of this include the competition they experienced in Holland from KPN and Telfort and surprisingly enough even the competition they experienced from E-Plus on their own home market in Germany. If mistakes like these are not classic examples of mismanagement, then we must have misunderstood what it takes to be allowed to state that a company has been mismanaged.

What information has Strand Consult published about this through the years?

Over the years we have published a number of research notes that have described some of the strategic mistakes being made in the USA. Some of those research notes have directly described strategic mistakes being made by T-Mobile USA.

Here is a brief historical preview of some of our previous research notes:
Back in the year 2000, a number of operators outside the USA chose to change their value added services strategy to an open garden strategy. But the USA did not follow suit and it would be a very long time before creative content providers were allowed to develop, market and sell mobile services in the USA. We wrote about this in this research note: 

We brought this subject up again at a later date, because the US operators were still having difficulty understanding what was happening on many VAS markets outside the USA – Today most of the VAS market in the USA is simply bypassing the operators, with market players like Apple selling services directly to customers without operators receiving any revenue from that business area.

When we examined the business of building cost efficient distribution, we saw that T-Mobile chose the most expensive model. They copied their competitors by viewing the American market as a handset-centric market where they would use the brand T-Mobile to service all Americans regardless of age, sex, religion or race. In other words, T-Mobile had obviously not learnt anything from E-Plus’s success in Germany and that an aggressive MVNO strategy can greatly benefit the shareholders of operators that understand and take advantage of that market. This is described in this research note we published last year: 

There is no doubt that the T-Mobile USA has primarily focused on the prepaid market. On the other hand they had not understood the trends that were already happening on this market in other countries and were therefore not taking advantage of the cards they could have played in a country like the USA. Basically, T-Mobile USA has also made a poor business effort on the prepaid market.

We are the first to admit that it is very easy to gloat over Deutsche Telekom’s business “adventure” in the USA, but many of the previous and recent challenges that T-Mobile USA have faced were directly caused by good old-fashioned mismanagement and could have been solved if T-Mobile USA had learnt just a little bit from some of the other mobile markets that T-Mobile were already doing business on – and especially by learning from some of their competitors that had been making life tough for T-Mobile on a number of their other markets.

Evil people…

An evil person might say that T-Mobile employees that had the experience and knowledge about how T-Mobile had experienced massive competition in Germany and Holland from successful competitors might not want to share that information – because nobody wants to admit that they got thoroughly beaten up by their much smaller competitors!

In conclusion The American T-Mobile venture has been scrapped, those that ought to be held responsible for this sad turn of events will not be accused of anything and the shareholders will once again realise that they have invested in a company that despite all their experience and knowledge could not perform.
More information:

Successful Strategies for the Mobile Broadband Market

OneAPI – Next Generation Value Added Services in the Mobile industry

Show me the money – The future Business models for mobile Broadband Services

How MVNO´s can get success in the Mobile Broadband market

How media companies can get success on the mobile broadband market

How to get success with Value added services on the Mobile Broadband market

How can a Wimax operator survive in a world full of WCDMA

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