Back in 2015, we said T-Mobile was basically becoming a cable company as it sought to turn its wireless data customers into bigger consumers of mobile video, exempting preselected services such as Spotify and Netflix from user data caps.
Now T-Mobile is literally becoming a cable company. On Wednesday, it said that it's buying Layer3, a TV provider that styles itself in the same, scrappy mold as the nation's third-largest wireless carrier.
The announcement is light on details, hinting only that T-Mobile will be introducing a "disruptive new TV service" sometime next year. But it highlights the enormous pressure that Internet providers and telecom companies are under to make their services unique to customers.
A recent newcomer to the industry, Layer3 has zigged where others have zagged: Rather than offer "skinny" bundles of channels to appeal to cost-conscious cord-cutters, it has focused on delivering a "white-glove," premium cable experience with all the traditional trappings, including a full line-up of programming. Its pitch? That consumers simply want a better relationship with their TV providers. As if in recognition of that, Layer3 sends its technicians out in Teslas and electric BMWs — a decision, it insists, that is tied more to environmentalism and corporate efficiency than to image.
For T-Mobile and its rivals, it is no longer enough to be considered mere carriers of bits and bytes. As recent wireless price wars have squeezed the margins on voice and data service, the new frontier lies in offering access to exclusive video content that can lure customers and serve as a platform for targeted advertising.
"The world is changing — with mobile video, streaming services, cord cutting, original content and more," said Mike Sievert, T-Mobile's chief operating officer, in a release. "And yet, the old guard simply can’t — or won’t — evolve. It’s time for a disruptor to shake things up and give people real choice like only the Un-carrier can.”
It's no surprise to see T-Mobile bet more heavily on video. In doing so, the company follows in the footsteps of Verizon, which launched a proprietary video app in 2015, and AT&T, which bought DirecTV that same year and is now trying to buy Time Warner despite government opposition.
The question is whether T-Mobile's bet on a troubled TV business model can pay off. Layer3's chief executive, Jeff Binder, has said that his company will overcome the challenges facing the rest of the cable industry by essentially ignoring cord-cutters and marketing to the remaining cable diehards, who tend to live in wealthier households. Layer3's TV packages currently start at $75 per month.
Not only does that philosophy diverge from T-Mobile's roots as a budget-minded alternative to AT&T and Verizon, but it also raises questions about whether Layer3 has a compelling offer — and whether enough consumers are willing to pay top-dollar for it.
"We’re left scratching our heads. Why did T-Mobile decide they needed their own service?" said Craig Moffett, an industry analyst at MoffettNathanson, in a research note Wednesday. "Let’s restate the obvious. Linear Pay TV is a declining business."
Still, if we've learned anything from T-Mobile and its brash executives, it's that they are frequently willing to abandon conventional wisdom and do the opposite of what observers would expect. It's worked for them so far.