When corporate earnings were released to the public in the third quarter of 2012, shareholders and analysts assessing the financial health of T-Mobile USA had independently reached the same conclusion. With network subscriptions dropping a staggering 492,000 and profits falling over 15 percent from where they were one year prior, T-Mobile seemed poised on the edge of economic collapse.
And yet, all was not as dismal as it appeared. Even as experts and competitors like AT&T and Verizon were predicting the pending demise of T-Mobile, parent company Deutsche Telekom was finalizing the details on a plan to set T-Mobile on a firm financial foundation once again. Beginning with an investment of $4 billion, T-Mobile’s infrastructure was upgraded with a faster 20 MHz LTE capability, followed by an overhaul of their traditional one year service contract to a plan with a one-month time commitment and features that included unlimited talk, text and web. The strategy really paid off: by the third quarter of 2013, these efforts had not only revived T-Mobile, they resulted in the addition of 648,000 new subscribers and a 37 percent increase in revenue in only one year.
While such an astonishing turn-around is usually enough to satisfy even the most demanding company executives and shareholders, for Deutsche Telekom and T-Mobile it was only the beginning. Rather than rest on their laurels, executives made the bold decision to expand their product line into the realm of financial services, launching a pre-paid debit card called Mobile Money in early 2014. Why was this considered such a bold move? Mainly because the Mobile Money pre-paid debit card has no complementary relationship with the mobile carrier services that T-Mobile is known for. In fact, Mobile Money card users aren’t even required to subscribe to the T-Mobile network.
The fact that T-Mobile users can avoid many of the normal fees that non-subscribers are charged for may bring some new customers to the T-Mobile carrier network, but the real purpose of Mobile Money is to draw in new customers frustrated with the nearly $1,500 a year in fees for traditional pre-paid debit cards. Mobile Money will also appeal to tech-savvy users who appreciate the convenience of 42,000 in-network ATMs and being able to deposit funds simply by taking a picture of a check with a smart phone.
So why would a company just back from the brink of economic ruin choose to expand into a product area whose appeal may lie outside of its current customer base? One reason: T-Mobile executives wisely determined that focusing solely on one product offering or the needs of only their current customers puts them at risk of financial ruin should their share of the mobile carrier market slip again.
The concept of investing in emerging technologies and the need for businesses to take advantage of the potential client base and profits these opportunities offer is by no means a new idea. Coined as disruptive innovation by Clayton Christenson in 1955, economists and business experts have known for decades that companies who fail to invest in new product lines based on emerging technologies risk not only losing the ability to cash in on the profits these new opportunities offer, they risk falling behind their competitors and losing established customers to cheaper and more accessible products and services.
When one considers the benefits of disruptive innovation, it’s easy to see how T-Mobile’s decision to expand into the realm of financial services is both brilliant and judicious. As T-Mobile CEO John Legere expressed during a recent discussion on the revitalization of T-Mobile: “T-Mobile’s Un-carrier approach is resonating with consumers.” Indeed. T-Mobile’s ability to hold on to their existing customer base while luring in new consumers with their pre-paid debit card demonstrates they are able to maintain their current customer base and capture a new section of the buying population. Although the jury is still out on whether T-Mobile’s disruptive innovation strategy will pay off in the long run, all indicators are pointing towards a company that is leading the way and ready to surge past its competitors in the not-too-distant future.
