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How T-Mobile's pricing is pushing AT&T and Verizon in a race to the bottom

Glenn Fleishman | Aug. 17, 2015
Remember back in 2011 when AT&T said it needed to acquire T-Mobile in order to remain competitive against Verizon? That it couldn't get enough spectrum for 4G LTE without the merger? Oh, I never laughed so hard--and neither did the U.S. government.

john legere
T-Mobile CEO John J. Legere

Remember back in 2011 when AT&T said it needed to acquire T-Mobile in order to remain competitive against Verizon? That it couldn't get enough spectrum for 4G LTE without the merger? Oh, I never laughed so hard--and neither did the U.S. government.

The deal was scotched after months of lobbying, but AT&T has done quite well for itself since its plaintive acquisition bid. It reported a $3 billion profit in its most recent quarter, and in a recent press release, the company writes, "...Adjusted earnings and free cash flow will grow in 2015 and each of the next three years."

Terrible! This really sounds like a company being smothered by competition.

In fact, the government squashes mega-acquisition deals like the one AT&T attempted in order to promote competition--reasonable competition--that benefits consumers. And now we're seeing that action pay off: T-Mobile and AT&T went their separate ways, T-Mobile hired an aggressive (and foul-mouthed) CEO, and as the number three carrier in America, T-Mobile has forced AT&T and Verizon to change how they sell phones and charge for data. (Sprint lags in almost every regard, and at the moment doesn't figure competitively.)

But while the three dominant carriers' prices have dropped only slightly for certain plans, that's about to change. Currently, the networks add features or increase usage limits to attract new customers, but now there's almost nothing left to give customers other than lower monthly rates.

The path to lower prices

The carriers are still in a "let's woo them with more data" mode, and on Friday we saw the latest impact: AT&T announced an upgrade for its Mobile Share Value plans. Its aimed at the typical middle-tier customer, who will now get 15GB instead of 10GB of data at the same price--$100 per month and $15 per line (this via AT&T Next, its "lease to buy" phone purchase plan). All of these plans already had unlimited international texting, but now $100-and-higher plans also get unlimited voice calls placed in the U.S. and Puerto Rico to Canada and Mexico.

Over the last four years, T-Mobile has been the primary driver of more consumer-friendly plans (though changes have come incrementally). Feature after feature, T-Mobile has reduced the cost of using a smartphone, as well as the stress of managing and monitoring usage to avoid extra fees. And along the way, it's defied industry conventions that were considered the only way to build a sustainable and growing customer base (if not marketshare).

As a small carrier, T-Mobile had to burn money to gain customers, but it turned a profit in its most recent quarter, while also adding more than two million customers. So its strategy is beginning to pay off.

 

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