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May 21, 2012 10:24 AM

Q&A: T-Mobile CEO on layoffs, iPhone, mergers and more

Posted by Brier Dudley

After a detour through Dallas, Philipp Humm is finally getting to reshape T-Mobile USA.

Humm reinvigorated T-Mobile's German business before parent company Deutsche Telekom sent him to Bellevue in 2010, to rev up America's fourth largest wireless company. But before Humm could make his mark here, Dallas-based AT&T moved to buy his company for $39 billion.

That left T-Mobile in limbo and hemorrhaging subscribers through much of 2011, until the merger collapsed under regulatory scrutiny in December.

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Before it was over, T-Mobile took another hit from the new Apple iPhone, which launched in October -- on the networks of T-Mobile's three large competitors.

Once the dust settled, the athletic German sprung into action.

In February he announced a $4 billion upgrade to LTE network technology going online in 2013. In March he consolidated call centers, closing seven of 24 In April, the company began re-branding itself as more aggressive and tech-oriented.

May's initiative -- announced last week -- is a broad restructuring that includes flattening management and cutting slower-growth areas of the businesses. About 900 layoffs resulted, but Humm said 550 positions will be added through the year.

Combined with an effort to build up T-Mobile's business sales, the company should end up with a much larger presence in the Seattle area, Humm said in an interview last week.

Here's an edited version of the conversation.

Q: It has to be tough leading a company through the roller coaster of a failed merger, followed by restructuring. How is morale?

A: I'm very proud about the way, in particular, our management and our employees have taken the news, taken the information and also the feedback we've received, the way we handled it and the way we supported our employees.

Q: What exactly is happening?

A: What we are really doing right now is we are trying to restructure T-Mobile to be ready to invest in different growth areas.

Q: Can you clarify the layoff numbers?

A: There will be about 900 positions which will be eliminated on one side, but at the same time we're creating 550 new positions, which means that we have a net reduction of 350 positions, which I think was often misunderstood.

Q: There are also "business to business" jobs being added?

A: We are creating on top of it another 1,000 jobs, but they will all be in B2B. They will be nationwide and that's a program which will probably take between two and three years to be completed. If you add that into it, we will, at the end of the day be net positive, but we will look very differently.

Q: What areas have less growth potential now?

A: We have looked at different areas where we can improve, for example, our expense or controls or reduce numbers of layers between the chief and the customer so we are more agile as an organization. I don't want to go into specific functions.

Q: Where do you see growth?

A: The business area. We're also investing in different paths of marketing. We simply need new employees with new skills.

Q: What's changed?

A: We have not in the past really focused on the B2B segment per se. That's why we have only a market share of 5 percent in B2B. Obviously, we have different ambitions and want to significantly grow our market share.

Q: For residential customers, will T-Mobile seem different?

A: If you contrast our advertising a year ago with the current advertising, we're really evolving the brand by making our spokeswoman also evolve. We're trying to evolve from "more affordability" to being known for cutting-edge 4G and affordability.

So we want really to make sure that customers start to understand T-Mobile is a very serious tech brand, which has a very strong 4G network, which has a very strong 4G device lineup.

Q: Will affordability continue to be a hallmark of the brand?

A: Yes.

Q: Will there be less affordability -- or price increases?

A: I don't think there is a need for less affordability or changing our price positioning. We have good price positioning now. It's really adding the tech aspect to our brand and really restarting the brand.

Q: Was the restructuring planned before the AT&T deal?

A: Yes and no. Being a challenger in the market, strategically you need to have an organization that is aligned with our strategy. We would have done the restructuring independent of the AT&T merger. Probably the same as we did or a little bit more.

Q: Do you need to sell the iPhone?

A: At the end of the day the iPhone is a good and important smartphone. The question is, do we need to carry it and subsidize it or do we simply open up the network to let people bring the iPhone with them?

We have been quite successful very quietly in really offering unsubsidized rate plans. If you look at our growth ... 45 percent of our growth adds are unsubsidized rate plans. We already shifted the model at T-Mobile quite significantly.

Q: Will you add shared data plans for families, like Verizon is planning?

A: We have a little bit different belief. We have family plans out today which are where, when you add a line, you get a discount or you get tethering included in your main rate plans.

We think that the industry -- that's our opinion -- is probably doing a mistake by trying to copy a very old fashioned voice model for data and now trying to pool data.

Imagine the situation: three people in the house, one of them is a teenager. You have a family rate plan -- say, a rich plan of 5 gigabytes -- and the teenager, girl or boy, watches an HD movie. Your family rate plan is gone. You are at work trying to download data and it suddenly says sorry, game over. You can get for another 10 bucks another half a gigabit or whatever.

I don't think that is a model that really applies to the modern world, and I wouldn't want that to be a rate plan we are putting forward because it will create negative customer perception.

Q: T-Mobile made a commitment to push Windows Phone this year. How is that working out?

A: I think we have a very good relationship with Microsoft, and we discovered that, in particular, for customers who are new to smartphones, they really enjoy the simplicity of the Microsoft [user interface], so they like the design and the ease of it.

Q: Are Windows phones selling as well as you hoped?

A: We are so far quite pleased and I think Microsoft, if you talk to them, [is] quite pleased with T-Mobile.

Q: There have been reports that T-Mobile may merge with a smaller carrier or go public. Will something big happen to your company?

A: We are pretty sizable company; we are profitable and we are on the right path to growth. ... That's really our main point of view, to strengthen our own business and come back to growth.

Beyond that we will always look at opportunities to gain additional scale or additional spectrum or strengthen capital structure in the U.S. market. Those are always things we will be looking into.

Q: Are there too many wireless carriers in the U.S.?

A: Overall we are in the infrastructure business. Infrastructure business always leads to a certain consolidation as a matter of principle. Based on today's model you would expect some sort of consolidation in the years to come.

That being said, if the government throws lots and lots of spectrum into the market, the barriers of entry for new people to come into the market would be lowered and you would have new competition.

Q: Isn't the market saturated, with subscription growth cresting last quarter?

A: We will continue to move customers from nonsmartphone rate plans to rate plans, which is accretive. So data is really the big driver. That's something everybody is doing.

Q: Will T-Mobile's local stature change?

A: The region is a very dynamic region for our industry and associated industries. Just look at Amazon, Microsoft, T-Mobile, all very big and important companies in their respective sectors and working all different forms together. The region itself will continue to be a very vibrant and important region.

Also if you look at our restructuring, the net effect of the restructuring will not lead to a decrease of positions in the Puget Sound area, but actually lead to an increase of positions in the Puget Sound area.

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