In an interview, John Legere explains his reasons for joining T-Mobile USA as its new CEO – and how the merger with MetroPCS will power the Challenger strategy even further.
Your predecessor left after roughly a year. What motivated you to join T-Mobile?
John Legere: T-Mobile is a very well-known brand in the US. And I believe both the American public and T-Mobile employees were primed and ready for this company to get aggressive. I went to Germany and sat down with René and with Tim, and I said, if you’re looking for someone to come in and get aggressive, motivate your people, and move this company to a renewed position of prominence, I can help. DT stock has fallen since the merger was announced.
What happened?
John Legere: It would be both inaccurate and unfair to say that this deal was announced and DT stock fell. In fact, the deal was announced and DT's stock immediately went up. There was then a lot of speculation and activity in the market, during which time the stock fell. Look, if I were really smart enough to be able to explain the arbitrage plays and other stock market dynamics that unfold during this type of transaction, I would be a very, very wealthy man. I will say, however, that I think there is now a bit of an overhang from the widespread speculation of the last few days. Still, I do believe that the initial reaction from analysts on this deal was all positive.
So is it largely about convincing the markets?
John Legere: For T-Mobile USA, this is a big deal for a number of reasons. Through this deal, we’re creating a clear wireless value leader for the US market. Revenue-wise we’ll be the market leader for the industry’s value category. About 25 percent of the market here is now in the no-contract segment. The overall mobile industry in the USA is growing by about 2 to 3 percent annually. The contract segment is seeing 1 to 2 percent growth, whereas the prepaid segment is growing at a rate of 9 to 10 percent. So this is the fastest-growing portion of the business. And we’ll not only be affordable, we're also going to be highly innovative. Working together, these companies are going to have some surprises for this market.
Are there other reasons?
John Legere: There are also the spectrum synergies. This deal could not be more ideal in terms of the complementary spectrum that it creates. It really could not be more perfect in terms of what it will do for us with regard to our 4G LTE roll out. We will have significant LTE spectrum capacity in most major cities in the United States. I'm talking about being clearly superior to AT&T and Sprint. We are in the midst of a process and a transformation that is going to take the combined company to an incredible place.
What about other business synergies? Is it possible they were exaggerated to spice the deal?
John Legere: Not at all! We are talking about 6 to 7 billion dollars in net present value synergies. A full 5 to 6 billion of this is very clearly identifiable and achievable in simply having one network instead of two. On top of that, we can offer a growth company story. This will be a reverse merger that offers what is, in effect, a fast-track IPO for the combined company. This will create a much larger publicly-traded company. And the combined company is expected to deliver five-year compound annual growth rates in the range of 3 to 5 percent for revenues, 7 to 10 percent for EBITDA, and 15 to 20 percent for free cash flow.
How important is it for the deal to succeed?
John Legere: This deal is just one of several very important initiatives for this company. Having said that, it’s not do-or-die . From the moment I got here, I've been working to accelerate the Challenger strategy, because that strategy in itself will create a successful company. For instance, by the end of 2013 we're going to have an extremely competitive and well-differentiated network, even without MetroPCS. Most M&A transactions are motivated out of need. However, we are doing this deal to accelerate a strategy that in and of itself will be successful.
How can you guarantee this won't be a second Sprint Nextel debacle?
John Legere: Because this has nothing to do with network integration. We plan to quickly migrate MetroPCS customers to T-Mobile's network. We’re not trying to smash together two networks with differing technologies, but rather moving MetroPCS over to a bigger, stronger network with combined spectrum. When Sprint bought Nextel, they suddenly had new customers dependent on features that they couldn’t match on their own network. There are no features or services MetroPCS customers have now that T-Mobile can’t immediately support on our own network. And we are speaking about prepaid: 60 to 65% of Metro costumers either churn or upgrade every year. So we don’t have a problem at all. We have a phenomenal business opportunity to upgrade these costumers to devices that offer them a better experience on a more powerful national network.
Will the merger bring job cuts?
John Legere: This is a growth story. The plan calls for growth. The challenge I have right now is around recruiting and retention, to keep the employees we have and to look at new opportunities for growth. Are you preparing yourself for a counterbid? I am not going to spend too much time speculating. I think it is a very attractive deal all around, especially given that MetroPCS shareholders will be 26% shareholders in something that clearly has significant upside for the company - so they’re looking at $4.09 a share and 26 percent of a story and a strategy that is all about new growth and new opportunities.
How will the Challenger strategy get you to growth again?
John Legere: One pillar of our Challenger strategy is to be the clear value leader, and a couple of things we have done so far are gaining real traction. We’re the only player in the US providing a nationwide unlimited data plan. This is a huge differentiator for us. Roughly 18,000 customers are signing on to this plan each day. Price and unlimited data are now the biggest factors impacting customers’ decisions. That’s especially true for younger demographics, the next generation of consumers.
But you still don’t have the iPhone…
John Legere: Certainly, that is one missing element in our arsenal. I won't fuel speculation, but let me just say as far as carrying the iPhone directly, it is more a question of "when" than of "if". That said, we already do support the iPhone with through our popular and growing Bring Your Own Device Plan. We currently have over a million and a half iPhones on our network. Thousands of customers with iPhones have already come over to T-Mobile . I took my own unlocked AT&T iPhone and ported it over to T-Mobile . And that’s just a start.
As the refarming of the spectrum to iPhone-friendly frequencies progresses, and we then build out our LTE network, it only gets better. But now Softbank is pumping up Sprint. It won’t be easy for you to reach that third position in the US market. I’m a very competitive athlete. I’m always setting long-term goals. And I think it’d be crazy for us not keep on our eyes on the horizon and recognize the significant differences in what we have to offer to customers. Sprint’s network capabilities are so clearly inferior to ours. Our brand is strong and getting stronger. Our brand image is younger and edgier and we know that appeals to the marketplace. And we have a young, aggressive, world-class team. So yes, I would clearly set a target for us to catch up to and surpass Sprint and move into the third position in this marketplace. It’s not going to be 2013. And it may not be 2014. But my team gets excited about looking into the future and feeling that this is a company ready to fight and win.