T-Mobile's Latest Un-carrier Move Is a Price Increase

By Markets Fool.com


Image source: T-Mobile.

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Wireless carriers in the U.S. have been increasing their prices over the past year or so as the amount of customer switching declines. AT&T (NYSE: T) just increased its rates, upping its smallest data plan to $30 for 1 GB (from $20 for 300 MB). Verizon (NYSE: VZ) likewise increased its rates by $5 to $10 per data plan while increasing the caps.

T-Mobile (NASDAQ: TMUS) made a similar change late last year, but with its latest Un-carrier move, it's getting rid of data plans altogether. Instead, all new customers will be directed to its new service, T-Mobile One. The new plan offers unlimited data (with a few caveats) for $70 per month for the first line, with each subsequent line receiving a discount. (A family of four will be able to subscribe for $160 per month.)

While T-Mobile is promoting this as if it's a benefit to the customer, the reality is that it's a price increase. Current customers will be able to stay on their lower-priced plans, but new customers -- it seems -- will only be able to choose T-Mobile One.

Everyone on T-Mobile already had unlimited data

T-Mobile's smallest data plan is 2 GB and it costs $50 per month for the first line. (A family of four costs $100 per month with 2 GB of data for each line.) Although 2 GB is a relatively small amount of data, it's hard for users to go over it.

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Past Un-carrier initiatives Music Freedom and Binge On allowed subscribers to stream music and video without it counting against their data caps. That takes care of most heavy data-consuming apps. In effect, T-Mobile is providing unlimited data to all but the heaviest mobile gamers and Snapchat users.

Binge On did come with the caveat that users must stream video in 480p or "DVD quality," while old unlimited data plan subscribers could stream all the HD video they wanted. Users can opt out of Binge On's free data policy if they want to stream in HD. T-Mobile One, by comparison, requires subscribers to pay an extra $25 per month to stream HD video -- there's no other way to get it.

Additionally, users that like to use their smartphone as a Wi-Fi hotspot will find their connections reduced to 2G speeds unless they pay an extra $15 per 5 GB of tethered data. Previously, subscribers could use their data however they saw fit.

This is a price increase, plain and simple. Not that that's a bad thing. T-Mobile's average revenue per postpaid phone subscriber was just $47.11 last quarter. That's down from $48.19 last year. By comparison, AT&T brought in $59.80 per postpaid phone subscriber. Verizon doesn't break out just phone subscribers, but all of its postpaid subscribers (including lower-cost tablets, wearables, and other connected devices) averaged $48.04 in service revenue per month.

The move to a single $70-per-month plan and an increase in its standard family plan promotion by $40 per month should help it move its postpaid phone subscriber ARPU closer to AT&T and Verizon's.

Distinguishing T-Mobile from MetroPCS

With the move to a single, relatively high-price plan, T-Mobile is positioning its postpaid brand as more of a premium brand with the likes of Verizon. Of course, it's still providing very good value compared to the bigger carriers AT&T and Verizon, but Sprint (NYSE: S) is still undercutting it on pricing.

In fact, Sprint responded to T-Mobile's latest Un-carrier move with a new unlimited data plan of its own, which limits streaming quality for video, music, and games. The plan undercuts T-Mobile's pricing with $60 for the first line and $40 for the second. (A family of four will still cost $160 per month.)

Sprint's biggest differentiator is price. As a result, T-Mobile and AT&T have used their prepaid brands -- MetroPCS and Cricket, respectively -- to attract Sprint customers to its service.

MetroPCS' ARPU last quarter reached an all-time high of $37.85 per month as T-Mobile successfully attracted more postpaid subscribers from its competition with its prepaid offering. Those are high-quality customers that spend more and switch carriers less often. But as prepaid prices increase and postpaid prices decrease, there's a blurring line between T-Mobile and MetroPCS service. T-Mobile One provides a clear distinction that T-Mobile isn't just about lower prices.

Going forward, investors may need to pay more attention to MetroPCS' results. The prepaid service currently only covers 200 million people versus 310 people for T-Mobile's main network. T-Mobile is working to expand its footprint, but it's generally strong wherever T-Mobile is strong (metro areas).

T-Mobile One could drive average revenue per subscriber increases, but it could have a negative impact on postpaid subscriber growth. Look for T-Mobile to push MetroPCS on price-conscious consumers to continue growing its subscriber base.

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Adam Levy owns shares of Verizon Communications. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends T-Mobile US. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.