The New York Times writes that T-Mobile, a unit of Deutsch Telekom (DT) which ranks fourth in subscriber in the US cell market, is launching a line of phones that work on its cell system and with WiFi. Calls from WiFi hotspots work on voice over IP and are free.
The moves seems a bit desperate, but like many actions of this sort, it can do real damage to both the company taking the action and its competitors. Fourth place is an ugly place to be when the first two places belong to Verizon Wireless and AT&T (T) with its new Apple (AAPL) iPhone.
But, free is free, and that is hard to bet. T-Mobile has to gamble that it can pick up enough subscribers to help offset the time that new customers spend taking over WiFi. The phones will almost certainly be used on the regular cell network some of the time, so perhaps those net incremental minutes for which T-Mobile gets paid have a high margin. They run on a network that has already been built.
By coming to market with a product that could save cellular consumers a very large amount of money, it breaks the customer base down the middle. On the one side are people who want the most cost efficient service and on the other are people who want the most beautiful phone.
Beauty only lasts so long.
Douglas A. McIntyre
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