New T-Mobile CEO stresses marketing
By Jeff Meisner
Puget Sound Business Journal (Seattle)
Jun. 2 Coming off one of T-Mobile USA Inc.'s best quarters ever, the pressure is on new CEO Robert Dotson to maintain the Bellevue wireless carrier's recent robust growth in the cutthroat wireless industry.


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        Dotson said his vision for the carrier doesn't isn't much different than that of his predecessor -- T-Mobile founder John Stanton -- but the priorities at the company have changed dramatically.
        Dotson, who has been with T-Mobile since the early 1990s, took over from Stanton in late March.
        The appointment of the former PepsiCo executive is an indication of a fundamental shift at T-Mobile from building out its network and spectrum holdings to an intense focus on marketing and building a strong brand.
        It was Dotson who spearheaded efforts to bring in glam actresses Jamie Lee Curtis and Catherine Zeta-Jones as spokeswomen in the late 1990s.
        "I'd classify my vision more as following where the industry is going than being any different from John's vision," Dotson said.
        In the early days at T-Mobile USA, formerly known as VoiceStream Wireless Corp., building out the carrier's capacity was the first priority because the number of subscribers signing on for service was growing at an explosive rate, he said.
        Over the last two years, though, subscriber growth industrywide has slowed as more than 50 percent of Americans now own a mobile phone of one kind or another. That's made price competition and new voice and data services vital to maintaining growth.
        "What's incumbent for T-Mobile now and the industry in general is to be a service company," Dotson said. "We are not going to deviate from our core expertise, which is going after the consumer market."
        In the first quarter, T-Mobile led the industry with 921,000 new subscribers, bringing its total to nearly 11 million.
        In addition, T-Mobile reported earnings before taxes of $315 million for a 20 percent margin, blowing away Merrill Lynch's estimate of $225 million and a 12.7 percent margin.
        On an after-tax basis, T-Mobile lost $216 million on $1.8 billion in revenue for the quarter. It had $94 million in cash and $1.2 billion in long-term debt as of March 31.
        Phil Cusick, an analyst with Wall Street investment bank Bear Sterns, said it is vital for Dotson to get T-Mobile to the point where its revenue covers the cost of operations.
        "T-Mobile needs to keep growing," Cusick said. "When they reach 14 million or 15 million subscribers, they'll start to make some money."
        Cusick thinks T-Mobile could reach the 15 million subscriber mark by the end of next year.
        How will the carrier, the smallest of the six major American wireless operators, get there?
        By continuing to offer cheap calling plans, for one thing, Cusick said.
        "Based on what we saw in terms of customer behavior in 2002, we're seeing people moving to a high-end product or the lowest-price competitor, and that's T-Mobile," he said. "That's what drove their 921,000 new subscriptions."
        While Dotson disputes that T-Mobile is the lowest-priced carrier, he acknowledged its sweet spot continues to be its offer of more minutes for $40 per month than its competitors.
        "If you really look at the pricing, T-Mobile is not a leader at the $20 price point," Dotson said. "Really, we want to focus on what I call the mid-range. I'm the one that came up with the "Get More" marketing plan. I want our customers to get more minutes for that $40 price point than any other carrier."
        T-Mobile customers can now get 1,000 anytime minutes for $40 per month, well above the next closest competitor, Cingular Wireless of Atlanta, which offers 675 anytime minutes for the same monthly rate.
        Dotson acknowledged there is little downward room for pricing moves by any of the six major carriers.
        "My personal view is there isn't any room left for lower prices. There are built-in barriers in this business and the carriers have reached them," he said.
        Competing on price won't be enough for Dotson. His vision for T-Mobile includes a much more interactive experience with the mobile Internet and digital media such as music and movie clips -- what the industry commonly refers to as data services.
        "I hate the term 'data,'" Dotson said. "I've never had a customer come up to me and say they want to buy some data."
        Dotson points to several new handsets that come equipped with small digital cameras, which hit the market late last year.
        The new technology is ideal for communicating with friends and families using a combination of pictures and text messaging, Dotson said.
        "On our GPRS network, we can take a 10-second video clip and send it off to someone over the handset," he said. "We believe people will pay for richer communication, and it's going to be a major revenue driver here at T-Mobile going forward."
        Downloading new ringtones is already a big hit with T-Mobile's younger subscribers, who feel they need that latest Eminem song to sound off when a call comes in to their phone, Dotson said.
        Mark Lowenstein, managing director of Mobile Ecosystem of Wellesley, Mass., said much of T-Mobile's recent growth is attributable to its recognizable brand.
        "How much does anybody really know or remember Cingular's brand?" said Lowenstein, a one-time analyst who started Boston-based Yankee Group's wireless practice a few years back.
        "The answer is, hardly anyone," he said. "Dotson being put into this role shows this is becoming more of a marketing-oriented carrier. Most of its recent success has come from marketing than from operations."
        One shadow looming over T-Mobile USA is the question of consolidation.
        Mobile Ecosystem's Lowenstein doesn't believe there will be consolidation this year, at least among the six major carriers. However, he said, as the lowest-priced competitor with the smallest number of subscribers, T-Mobile remains the most obvious first acquisition target.
        But T-Mobile USA owner Deutsche Telekom has changed its tune from last year. T-Mobile International AG CEO Kai Uwe-Ricke acknowledged then that the German telecom was in talks to sell T-Mobile USA to AT&T Wireless Services Inc. of Redmond or Cingular.
        Now, said Dotson, "The drivers and motivation behind a sale of T-Mobile have changed."
        In the first quarter of 2003, Deutsche Telekom reduced its debt from $71 billion to $66.2 billion.
        "DT was very vocal last year that they might sell T-Mobile as a means of debt reduction," Dotson said. "I don't think Kai (Uwe-Ricke) is going to close his ears to a potential deal, but it's also important for DT to remain an international player."
Copyright 2003 American City Business Journals Inc.


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