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T-Mobile USA gets orders to grow revenue, cut cost

By Peter Svensson

Associated Press

Published: Thursday, Jan. 20 2011 11:40 a.m. MST

Rene Obermann, left, CEO of Deutsche Telekom AG, and T-Mobile USA CEO and President Philipp Humm confer during a news conference, in New York, Thursday, Jan. 20, 2011. Obermann, on Thursday, said the goal is to have T-Mobile USA increase revenue by $3 billion by 2014 while cutting $1 billion in costs.

Richard Drew, Associated Press

NEW YORK — T-Mobile USA, the country's fourth-largest wireless carrier, has some tough marching orders from its German parent company: do a better job of keeping your customers while cutting costs. And don't expect help from Germany.

Rene Obermann, the CEO of parent company Deutsche Telekom AG, on Thursday said the goal is to have T-Mobile USA increase revenue by $3 billion by 2014 while cutting $1 billion in costs.

The goals for new T-Mobile USA CEO Philipp Humm come after two years of flat revenue for the company, which is struggling to compete with much larger rivals AT&T Inc. and Verizon Wireless. A decade of fast growth is behind the industry, and most Americans already have a cell phone. Bellevue, Wash.-based T-Mobile USA's subscriber count has stalled at just under 34 million, though it posts consistent profits.

Humm replaced T-Mobile USA's longtime CEO, Robert Dotson, in November. Humm previously headed Deutsche Telekom's German wireless arm from 2005 to 2008.

Now that the pool of potential new wireless subscribers is smaller, a key objective for Humm is to persuade T-Mobile subscribers to stay. The company has the highest "churn," or percentage of subscribers who leave every month, of the four national carriers. Obermann said last year's churn rate of 2.3 percent for subscribers on contract-based plans is "just not acceptable," and the goal is to reduce it to 1.8 percent by next year. That would bring it more in line with competitors.

Sprint Nextel Corp. has managed a similar reduction in churn by focusing strongly on improving its customer service. But Sprint took two years to bring churn down the same amount T-Mobile aims to do in one year.

Analyst Jan Dawson at consulting firm Ovum said the reason the three bigger carriers have lower churn than T-Mobile is that they've been more intent on retaining customers.

"From that point of that view, it's about time that T-Mobile put the same level of operational focus on churn," Dawson said.

Speaking to journalists ahead of an investor meeting in New York, Obermann said T-Mobile USA aims to gain market share in wireless Internet access, with the help of inexpensive smart phones and data plans.

But wireless Internet access is a tough field. T-Mobile USA was late in building out its wireless broadband network, and coverage still lags those of the major players. It doesn't do a lot of business with corporations, who are big users of wireless laptop modems and smart phones. It isn't able to sell the hottest smart phone, the iPhone, and will soon have to contend with not just one but two competing carriers who do have the phone, since Verizon Wireless will start selling it in two weeks.

There have been reports over the last year that Deutsche Telekom has been looking at radical moves to let it get more value out of its U.S. holding, including a possible combination with Sprint Nextel Corp. or some other U.S. partner.

On Thursday, Obermann signaled that the parent company is trying to make the best of the situation by letting T-Mobile USA stand on its own legs. If it needs to invest, perhaps to buy more airwaves to use for its services, it should finance that on its own, he said. He said that could mean selling cell towers to a cell-tower management company, then renting space for antennas. That's a common practice among wireless carriers, and Obermann said T-Mobile USA hasn't necessarily acted in the most efficient way by keeping ownership of many cell towers.

T-Mobile hopes to cut the $1 billion in costs in customer service by forestalling and fixing many of the underlying issues that customers call about. Eventually, that could lead to job cuts, Humm said.

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