Wireless Carriers: Instead of Bribes, How About Lower Prices?

January 10th, 2014

Just recently, in a move to head off the latest “uncarrier” marketing scheme from T-Mobile, AT&T offered to you a bribe if you leave its rival carrier. Now most of you recall that, at one time, the two companies were planning to merge; that is until the U.S. antitrust people at the Department of Justice said no way.

Since then, T-Mobile has been on a tear. Flamboyant CEO John Legere has been fighting front and center against rival carriers, with a main focus on, not surprisingly, the former suitor in that failed merger.

Before you get to the price wars, there are the service wars. So Legere says that, according to the surveys he quoted, largely based on users running benchmarks of smartphone LTE speeds, T-Mobile delivers results that are somewhat faster than the competition. AT&T, citing a more industry-standard survey, claims to do best. I’m sure Verizon Wireless will have something to say about that, though the carrier’s performance in midtown Manhattan, in New York City, has been troublesome according to recent tests.

But the real fight is over money. Last week, AT&T offered T-Mobile subscribers up to $450 in credits to switch. This week, T-Mobile offered up to $650 to switch from any other carrier. The reason for these spiffs, or bribes, is because many users who might want to jump ship would have to pay huge early termination fees to get out of their wireless contracts. That, however, doesn’t apply to recent T-Mobile deals, although you might still owe something on your hardware.

You see, T-Mobile’s current marketing scheme dumps traditional contracts. You pay a fee for the service on a month-to-month basis, and you can finance the purchase of your mobile gadget if you don’t buy it outright. Even if you stop using T-Mobile, you’re still stuck for whatever you owe on that hardware purchase, though I suppose you can sell off the thing to one of those online vendors and use the money to pay off your loan. However, once you pay for the hardware, your monthly bill is reduced by that amount.

AT&T actually now has a similar arrangement, where you pay a lower price for service if you own your own phone. That might induce some of you to do the math and see if it makes sense. After all you could, I suppose, finance the $649 purchase price of an iPhone 5s on your credit card, and pay off that balance, with interest of course, over whatever period you like.

In any case, T-Mobile’s new pricing arrangement, which has influenced the price plans of the competition, meant that 869,000 of those cherished postpaid subscribers joined the company in the fourth quarter of 2013, up 34% from the previous quarter. Customer churn, the percentage of users leaving T-Mobile, dipped to 1.7% from 2.5% a year earlier. This is a critical number, because it means more people are satisfied with the company, or at least keeping the service. After all, it’s expensive to acquire new customers when you count the ads and the upfront payments to switch.

But despite T-Mobile’s claims of superior LTE performance, and let’s assume it’s true for the most part, that doesn’t make the U.S.’s fourth largest carrier the best for everyone. LTE deployment is not as widepread as AT&T and Verizon Wireless. But it gets worse, because T-Mobile coverage may be decent in larger cities, but suffer severely in rural areas.

To get better coverage, T-Mobile has made a spectrum purchase/swap deal with Verizon Wireless. What this means is that some of T-Mobile’s high frequency spectrum is moving to Verizon, assuming regulatory approval, while the cherished low frequency spectrum is being acquired as part of the deal. The lower frequencies provide better performance over long distances and inside buildings, and are critical if T-Mobile wants to improve coverage in outlying areas.

Even if the deal passes regulatory review, and it surely enhances competition, it may take months or years to modify cell towers to support T-Mobile’s technology. In addition, some older handsets may not work on these lower frequencies.

In another development, Legere is denying published reports that Japan’s Softbank, who now owns Sprint, is interested in acquiring T-Mobile. Sure, the combination of T-Mobile and Sprint wouldn’t quite match Verizon Wireless, but it would still sharply reduce competition and would possibly get a no verdict from the authorities. Worse, the two companies support different wireless standards, which would create the threat of serious compatibility issues as the networks are ultimately combined. Besides, when mergers are afoot, the marketing plans impacting the two companies are pretty well dead in the water.

So T-Mobile is growing fast now. Maybe Germany’s Deutche Telecom, the company’s owner, would love to sell it off at a favorable price. But that doesn’t mean being acquired by a rival carrier. There are other possibilities, such as Dish Network, the satellite TV service, who has bought cellular spectrum and has been looking to make a key acquisition. Indeed, Dish lost out in an attempt to beat Softbank in acquiring Sprint. It is now being reported that Dish would love to get ahold of T-Mobile.

But if T-Mobile became part of Dish Network, it wouldn’t necessarily change marketing plans, or hurt the company’s rapid growth prospects. Indeed, it would make sense for Dish to keep Legere at the helm. He’s clearly getting the job done.

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One Response to “Wireless Carriers: Instead of Bribes, How About Lower Prices?”

  1. Monotonous Langor says:

    I’d love to ditch AT&T, but T-Mobile only provides 2G service where I live, quite a step down from LTE.

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