T-Mobile’s Un-Carrier strategy is behind the recent success in the operator’s postpaid segment.
T-Mobile’s long-term initiatives with its LTE network build, Un-carrier strategy, and the addition of MetroPCS will help the operator improve its financial position in 2014; however, short-term growth will be limited due to the competition’s time-to-market advantage over T-Mobile in LTE rollouts. In addition, T-Mobile is dealing with increased costs from the inclusion of MetroPCS’ networks which are eating away at margins.
T-Mobile reported better than expected subscriber results in 2Q13 due to the initial success from its Simple Choice plans and the addition of the iPhone. Postpaid subscriber net additions of 688,000 in 2Q13 were a complete 180 from a segment that has been rapidly losing subscribers for years. The results will be somewhat short lived as TBR believes T-Mobile will not be able to sustain this level of production from its postpaid segment in 2H13 once the initial demand for the Simple Choice plans dies down.
Promote new plan offerings to drive postpaid subscriber additions throughout 2H13
Riding the newfound success in its postpaid segment will be tough in 2H13 as the initial Simple Choice adoption will decrease leaving fewer net additions in 2H13. TBR believes T-Mobile will continue to post positive postpaid subscriber gains in 3Q13 due to its Simple Choice plans, though not at the same level as 2Q13. In addition, many of the postpaid net additions will come from T-Mobile’s own prepaid subscriber base, evident from the 2Q13 10,000 subscriber loss in prepaid.
In addition to the existing Simple Choice plans, T-Mobile is making multiple other changes and additions to its plan offerings heading into 2H13. These plans will help improve its postpaid subscriber position, though the operator will still trail far behind AT&T and Verizon in the postpaid market. T-Mobile launched its Jump program earlier in July to complement its Simple Choice plans. The plan cost $10 per month and provides insurance coverage for handsets and allows customers to upgrade their unsubsidized devices financed through T-Mobile’s Equipment Installment Program after six months of payments. This plan is targeting subscribers who are willing to pay more for the ability to get the latest smartphone release up to two times per year without any other upgrade fees.
AT&T and Verizon also launched similar device upgrade plans in the past month. Although T-Mobile’s Jump plan remains the least expensive compared to AT&T and Verizon, it will see the least success as T-Mobile’s subscribers are typically cost-conscious. Despite this, TBR believes the low price point will still result in a relatively high uptake in 2H13.
T-Mobile also added a new Simple Choice family plan offering to target families who cannot get access to these type of plans due to a credit check. The operator is providing the plan without the need for a credit check as it targets the bottom third of families who fall into this bucket.
Targeting this type of customer is risky due to their financial position, though T-Mobile has been going after these customers for years and thus will be successful in adding a number of new low ARPU subscribers onto its network. The main competition to these plans will be the prepaid market, which is where this subscriber bucket tends to purchase services from.
Targeting cost-conscious customers is nothing new for MetroPCS, though T-Mobile is making a move to draw in new subscribers to its latest prepaid brand. In addition to increasing MetroPCS’ footprint, T-Mobile added a less-expensive $40 per month plan and 15 new markets to its MetroPCS business.
The key behind this move is that 13 of the 15 markets are key areas that Leap Wireless operates in. These plans will aggressively target Leap’s subscribers, especially as they leave the operator ahead of the AT&T acquisition. Overall, T-Mobile’s multiple new offerings will help set the stage for T-Mobile to bring in long term subscriber additions.
Eric Costa, analyst in TBR’s Networking and Mobility Practice