Why T-Mobile’s All-In Pricing Strategy Could Pay Off

Last week, T-Mobile U.S. (NASDAQ:TMUS), the third largest U.S. wireless carrier, announced that it would eliminate all additional fees and taxes on its T-Mobile One unlimited data plans. ^[1] The move will be beneficial to customers of the One plan, as they will pay less for wireless services. For instance, T-Mobile notes that the costs for a family of four on a T-Mobile One plan will drop from $180.48 on average to $160. However, T-Mobile will lose out on lucrative additional fees, while still having to pay taxes and related surcharges to the government. Below we take a look at how T-Mobile intends to make its latest move pay off.

We have a $49 price estimate for T-Mobile, which is about 15% below the current market price.

See our complete analysis for T-Mobile U.S.

More Customers Could Migrate Towards The One Plan, Offsetting Fee Revenue Losses

The T-Mobile One unlimited plans, which T-Mobile launched late last year to replace its tiered data plans, were priced slightly higher than the company’s existing base plans. For instance, a tiered plan with 6 GB of data and 4 lines cost $120 versus about $160 on T-Mobile One. Overall, the carrier now expects the gain in new customers on the One plan and migration of customers from tiered plans to the more expensive One plan to offset the loss of fee revenues, potentially proving neutral for its postpaid phone ARPU.

Improved Brand Positioning Can Help Postpaid Adds

T-Mobile already has a reputation of shaking up the wireless status quo, taking the lead in scrapping wireless service contracts and eliminating overages. The move to eliminate taxes and fees will makes will T-Mobile appear more transparent and consumer friendly, improving its brand perception further. This could help the carrier win over subscribers from rivals such as Verizon and AT&T, who recently increased pricing on postpaid plans, while contending with feature phone attrition. T-Mobile has led the industry for 12 consecutive quarters in terms of postpaid phone adds and there is a possibility that the trend will continue in the near-term as the move helps the carrier further differentiate itself.

Lower Customer Service Costs, Timely Payments

Customer service accounts for a significant expense for wireless carriers, and T-Mobile is likely wagering that it will be able to lower customer call center volume by offering simplified billing, as one third of the calls are related to billing. Additionally, the carrier could also improve its customer quality and churn rates. Moreover, customers who see more consistent bills without surprises are more likely to pay regularly.

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1. T-Mobile Press Release [↩]