T-Mobile’s Latest Assault On Verizon Could Pay Off

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On Wednesday, T-Mobile (NASDAQ:TMUS) announced a new limited-time promotion targeted at getting Verizon Wireless customers to switch to its network. The third-largest U.S. carrier is offering to pay (up to $1,000) the full balance of device payments and early termination fees for iPhone or Google Pixel users who have been on the Verizon network for over 60 days. While the plan does have some fine print, it remains one of the most attractive promotional offerings we’ve seen by a U.S. wireless carrier in recent quarters. In this note, we look at the potential financial impact of the plan and how it could impact the carrier.

We have a $66 price estimate for T-Mobile, which is in line with the current market price.

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Costs Could Be In Line With Previous Promotions

Carriers typically spend liberally on postpaid phone subscriber acquisition and retention via device and billing subsidies, considering the better loyalty and higher ARPUs that these customers offer. For instance, we estimated that the limited-time iPhone 7 promotion that T-Mobile and other carriers ran last year potentially cost them as much as $450 per connection. The costs on the new plan could be lower, on average. While there might be scenarios of single-line customers with the priciest and most recent iPhone 7 Plus switching ($969 retail),  T-Mobile estimates that Verizon customers, on average, owe roughly $315 on their device. Therefore, the overall cost per subscriber could be roughly in line with previous promotions and the $1,000 upper limit is likely to reached with multi-line connections, for which monthly billings are higher.

Capturing More High-Value Customers 

As the promotion is targeted primarily at high-value customers – iPhone and Pixel customers on the Verizon Network are likely to have higher ARPUs compared to the industry average – they could sign up for more expensive T-Mobile plans. Additionally, T-Mobile requires these porting subscribers to sign up for its $15-per-month device protection plan, which is likely to be a high-margin offering. Although the carrier has indicated that customers can cancel this insurance at any time, if they choose to, it should help to partially offset the costs of the promotion.

The Branding And Perception Angle

While T-Mobile is offering a somewhat similar promotion to AT&T and Sprint customers (these plans will require customers to sign up for one of its device financing schemes), the deal is being primarily pitched to Verizon customers. T-Mobile was historically viewed as one of the weakest wireless networks, due to its spotty coverage in sparsely populated areas, while Verizon is perceived as having the best coverage and service. However, in recent years, T-Mobile has been steadily improving its performance, leveraging its growing low-band spectrum assets and its 4G focused capital expenditures. By targeting the promotion squarely at Verizon customers, T-Mobile is essentially pitching the strength of its rapidly improving network.

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