T-Mobile on Wednesday said it would launch a new TV service in 2018 and buy Layer3 TV, a Denver startup that offers high-definition channels online.
No purchase price or launch date was shared because it was “too early to talk about specifics,” said T-Mobile CEO John Legere, who was in Denver on Wednesday to make the announcement. But the top executive of the nation’s third-largest mobile service said this is all about disrupting an industry known for terrible customer service and limited choices.
“Why does big cable treat people this way? One simple reason: Because they can. Customers don’t have a choice. We’re going to bring choice once and for all,” Legere said. “We think this initiative fits with our existing plans.”
T-Mobile, which became the nation’s fastest-growing mobile service under Legere, plans to keep the Layer3 team in Denver and turn it into the company’s new TV division. Layer3 CEO and co-founder Jeff Binder will oversee the division and join T-Mobile’s senior staff. All 200 Layer3 employees will join T-Mobile.
That’s a relief to the Colorado tech community, which has seen numerous acquisitions of its startups and senior companies this year, said Phil Weiser, a University of Colorado Law School professor and founder of the Blackstone Entrepreneurs Network in Colorado.
“When you think about the founding of cable, the placement of CableLabs here, Dish, Layer3, that’s not an accident. We’ve had critical mass here. Layer3 came here because of that talent. That’s why I think T-Mobile will keep Layer3 here,” Weiser said. “They’re committed to Denver as Layer3’s headquarters. It’s not like T-Mobile is already doing this work elsewhere. They’re looking to Layer3 as their video engine and video product and giving the team the benefits of a much bigger company. That is really a great result. It’s a great success story.”
Legere said an investor brought the two companies together.
“We knew right then that this was something we had to explore,” Legere said. “What we saw in Layer3 was technology and a team. (Layer 3) probably saved us several years, maybe even more than that. It’s an all (internet protocol) architecture, and the user experience is fantastic.”
Layer3 started in Boston in 2013 and moved its headquarters to Denver a year later. Colorado offered the company $2.9 million in job-growth tax credits in exchange for creating 321 new jobs. So far, the company has received $338,641 in tax credits, confirmed Emily Williams, a spokesperson for the Colorado Office of Economic Development and International Trade.
The company kept a low profile, even as it picked up $80 million in venture-capital funding.
Fast forward to 2016, when Layer3 launched video in its first market — Chicago — and touted itself as a full-service and high-quality video alternative to cable TV. When it launched in Chicago, the core plan cost $120 a month. A fully-loaded package went for about $150.
But the difference between Layer3 and the new breed of online TV services such as Sling TV or DirecTV Now is the technology. Layer3’s video technology works best with what the company describes as a private IPTV line, a reliable high-speed connection to the home to ensure superior video quality with no buffering issues. The company expanded to areas with fiber-internet to the home, including the city of Longmont, which has city-owned fiber offering gigabit internet speeds. Layer3 is also available in Washington, D.C., Dallas and Los Angeles. The company had planned to launch in Denver this year.
While such reliable internet is hit or miss with current mobile wireless services, T-Mobile is already planning for 5G — the next generation of wireless — which could be faster than existing home internet speeds. The company plans to make money from subscribers, add-on services and targeted advertising.
Layer3 can tap a national audience, sell its services in T-Mobile stores and access T-Mobile’s 70.7 million customers. But it also means there will be tweaks made to Layer3’s technology, channels plans and other features to offer video to millions of smartphone users. Legere also hinted at what those could be.
“These skinny bundles we see from Sling and DirecTV don’t look that profitable, and we think they’re not what most Americans want. We believe that, overall, we’re going to craft something that generates a return,” he said.
“We’re not going to give the world another ‘Me, too,’ ” he said. “They don’t want to be stuck with TV on a diet, but a feast. We are not going to force you to do a MacGyver and piece together a dozen services and logins. And we’re not giving the world dumb linear TV. That’s why millennials are running from linear TV so fast.”
Angelo Zino, a financial analyst with CFRA Research, said T-Mobile needed to explore TV options to keep up with competitors such as AT&T, which acquired DirecTV in 2015. The company in September partnered with Netflix to offer the service to T-Mobile One subscribers.
“When you look at the brand (Legere has) created and the fact that millennials absolutely love the company, I kind of compare it to Apple,” said Zino, who gave T-Mobile stock a “buy” recommendation. “But the reason why they’re doing this is their wireless customers demand something like this or what their wireless competitors are offering. They had to do it at some point.”
T-Mobile’s recently enjoyed its 14th consecutive quarter of growth, coming in at $550 million of net income on $7.6 billion in revenues.
Excluding its MetroPCS brand, T-Mobile employs 1,850 people in Colorado. They work in the company’s stores, a regional business office and engineering team and a call center in Colorado Springs.
Updated 12/18/2017: Added the number of T-Mobile employees in Colorado.
