The Gigaom interview: T-Mobile’s John Legere on the myth of mobile data scarcity

It’s fair to say that since John Legere became CEO of T-Mobile US(s tmus) nearly two years ago, the U.S. mobile industry has changed a lot. Not only has T-Mobile triggered some big shifts in how mobile devices and service plans are sold, Legere has also injected a lot of excitement into a normally staid mobile market.

You can call it attitude or you can call it bombast, but Legere’s F-bomb-laced diatribes against AT&T(s t) and Verizon(s vz) have gained an audience among the press and consumers. Before T-Mobile’s Uncarrier 5.0 event Wednesday night, I had a chance to sit down with Legere and his executive team to talk about T-Mobile’s role in revitalizing a mobile market that needed — as Legere would put it — a swift kick in the balls.

T-Mobile Uncarrier 5

The inflated market for mobile data

My biggest question for Legere was whether T-Mobile questions the notion that mobile data capacity is a rare commodity that has to be metered and meted out sparingly. It’s a concept that mobile carriers have pushed for years to justify the high costs of mobile data plans. T-Mobile certainly hasn’t abandoned the idea of the restricted data plan, but it does offer an unlimited smartphone option and its metered plans are far more generous than those offered by its two biggest competitors, AT&T and Verizon.

“I do believe there have been artificial barriers and scarcity put up by the duopolists,” Legere said. Part of the reason is pure capitalism, he thinks: AT&T and Verizon want to maximize the return on their investments, so they charge as much as they can for data. By preserving the illusion that data is a limited resource, they can justify such high rates. Consequently, when T-Mobile offers lower rates for data, people assume that T-Mobile is vastly underpricing that resource.

Legere at Uncarrier 5.0 (Source: Kevin Fitchard / Gigaom)

Legere at Uncarrier 5.0 (Source: Kevin Fitchard / Gigaom)

“The question usually is, ‘How can you do that?’” Legere said. “It should be, ‘Why don’t the other guys do it that way?’”

Legere and his CTO Neville Ray believe that their competitors are also using the notion of scarcity as a crutch when they should actually be investing more in their networks. Though Verizon is now adding loads of capacity to its networks, last year it let its original LTE network get so overloaded in major cities that 4G connections were being shunted down to its CDMA network.

“Verizon had a back room full of spectrum, which they failed to deploy,” Ray said. “Was the situation real for their customers? Yes it was. Was it artificially created? You could argue it was.”

Mobilize 2012 Neville Ray T-Mobile

Neville Ray, CTO, T-Mobile, speaking at Gigaom’s Mobilize conference (c) 2012 Pinar Ozger [email protected]

T-Mobile’s answer has been to use every ounce of spectrum it owns – acquiring new airwaves and even shutting down most of its 2G network to create room for LTE. At its Uncarrier event on Wednesday, T-Mobile announced it has increased the capacity and speeds of its LTE network in 16 markets by 50 percent and is on its way to doubling those speeds by year end.

T-Mobile does have an advantage its two largest competitors don’t, though: its size. “Right now our customers are reaping the benefits of an incredible network, and they’re sharing it with half as many people,” T-Mobile CMO Mike Sievert said. If T-Mobile continues to grow at its current pace – it added 2.4 million new subscribers in the first quarter – then it may not have that advantage for long. But T-Mobile plans to make full use of it while it can.

A war fought on value, not on price

T-Mobile has become the destination carrier for the mobile data hog in the U.S.: Its customers consume twice as much data as AT&T customers and more than 60 percent more than Verizon or Sprint(s s) customers, Legere claimed. But he maintained that there is no price war in the U.S. mobile market. Nor does he have any plans to start one.

While T-Mobile does offer cheaper individual smartphone data plans than its competitors, Legere pointed out that T-Mobile hasn’t embarked on a quest to commoditize data in the U.S. It’s created some cheaper options for entry-level users, but in March it actually raised the priced of its unlimited data plan to $80 a month.

T-Mobile is now letting customers on its Simple Choice data plans to stream music without it counting against their data plans (photo: Kevin Fitchard / Gigaom)

T-Mobile is now letting customers on its Simple Choice data plans to stream music without it counting against their data plans (photo: Kevin Fitchard / Gigaom)

What T-Mobile has done is offer more consumer-friendly options that cut out hidden fees like device subsidies. It’s also instituted polices that encourage customers to consume more data, Legere said. The Music Freedom program T-Mobile announced on Wednesday is a good example, exempting music streaming from its data caps. Legere said that contradicts competitors’ policies of selling their customers a music streaming service and then charging them for the data consumed.

“Wireless carriers shouldn’t tell you, ‘Hey, here’s the service you should use, it’s really good, take this one,’ and then charge the shit out of you for every piece of its use,” Legere said. “Most people that raise this topic of price war [are] thinking about it in the context of whether AT&T and Verizon have to change their profitability [models] to compete. That’s not our issue. That’s not a price war.”

However the war is being waged, it’s beginning to incur some casualties. Last quarter, Verizon actually lost core smartphone subscribers, while T-Mobile raked them in. AT&T didn’t feel T-Mobile’s bite as much, but then again AT&T countered every T-Mobile promotion and program while Verizon mostly stood on the sidelines.

Legere claims Verizon was trapped: It didn’t want to look weak in front of its shareholders, so it just pretended T-Mobile wasn’t a problem.

Source: T-Mobile

Source: T-Mobile

“They’re highly profitable and very big. It’s an age-old problem. How do you cannibalize your own base when someone is attacking you? What happens, historically, is you ignore the little guy,” Legere said. “Arguably in the short term [Verizon] was rewarded by its shareholders for not getting into this game. AT&T, on the other hand, reacts to everything we do and say, which makes it more fun for all of us.”

So what happens if Uncarrier works? If T-Mobile’s growth rate keeps up, it could soon surpass Sprint as the No. 3 mobile operator in the U.S. And if T-Mobile continues to chip away at Verizon and AT&T’s core smartphone customers, it will eventually start bridging the yawning chasm between it and the Big 2. If T-Mobile becomes a megacarrier in its own right, does it just become another AT&T or Verizon, entrenching itself and focusing on profits?

Legere, as you might expect, says no way. While he admits that one day T-Mobile may no longer be a squirrely upstart in terms of market share, he said the company’s whole business model now revolves around challenging traditional carrier business models. If it started acting like AT&T, it would lose the millions of new subscribers that it worked so hard to gain.

“Uncarrier is not just a marketing program,” Legere said. “It’s a culture. It’s the fundamental basis of who we are as a company.”