T-Mobile US Inc. (TMUS) CEO John Legere announced the “Simple Starter” plan to free up American consumers from what he calls “predatory” business practices by the old guard. He promised further rollouts over the coming days as well. The announcement sent T-Mobile stock up 1.7% yesterday.
T-Mobile’s “Simple Starter” Plan
T-Mobile’s announcement yesterday is part of its larger “Un-carrier” movement that the company started a little over a year ago. Legere’s statement, which came in addition to the company’s announcement, was more pointed and specific in the attack against larger rivals.
The fiery CEO termed current industry tactics as “predatory bait-and-switch moves” used by companies to lure subscribers into contracts that later keep on adding costs. Legere was pointing specifically at AT&T Inc. (T); the two have been taking shots at each other as of late.
T-Mobile is calling its latest roll out the “Simple Starter” plan, which is aimed at value-conscious consumers looking for cheap entry-level alternatives. The plan is fixed at $40 per month, and offers subscribers with unlimited voice calls and texting, along with 500MB of data on the company’s 4G LTE network.
The plan differentiates itself from industry standards by offering predictability and affordability. It guarantees no data overage charges, while AT&T’s comparable entry-level plan jacks the price by $20 if the data limit is exceeded. Moreover, the data limit for AT&T’s plan is lower, at 300MB.
T-Mobile is also maintaining its original strategy and offering the plans from April 12, without forcing subscribers to commit to annual service contracts while providing financing for some of the latest phones.
Telecom Industry Overview
Earlier this year, T-Mobile also announced an incentive of as much as $650 to cover early termination fees for all consumers switching over from any of the other carriers before their contract ends. That resulted in a return salvo from AT&T that specifically targeted T-Mobile customers by offering them up to $350 for switching to AT&T’s network.
T-Mobile’s strategy is paying off; the company added 4.3 million subscribers to its network last year, after losing close to half a million in 2012. The company’s churn rate also declined to 1.9, from 3.4 from 2012, while revenues increased by almost 24%.
All of this in response to current trends in the US telecom industry, which is going through a phase of intense competition as companies battle each other in a saturated market place. Larger telecoms, including Verizon Communications Inc. (VZ), have been playing catch-up in response to smaller rivals, which have been very aggressive over the last year in trying to poach consumers.
Verizon, the largest player in the industry, has tried to avoid getting in the mix of things. The company believed that its network superiority would keep it immune from losing subscribers. It did eventually cave in to aggressive measures by other competitors though, by cutting prices on some of its plans as well. Both Verizon and AT&T are also increasingly looking toward wireline businesses such as broadband internet and TV as a medium for future growth, and have been making moves to expand their reach in those segments as well, which is another indicator showing maturity in the wireless business.
While all of this has been going on, SoftBank Corp (SFTBF), which is owned by Sprint Corporation (S), has been working its channels to analyze a potential acquisition of T-Mobile. SoftBank’s CEO Masayoshi Son has expressed interest in T-Mobile; he went as far as to secure financing for a potential deal.
During last year, T-Mobile and Sprint have both outperformed the market by at least 20%, with stock price gains of 41.7% and 40.1%, respectively, while the S&P 500 rose 19.4% in comparison. Year-to-date, AT&T is the only stock to beat the S&P 500; the former has increased 4.7% while the broader market is up 4.35%. T-Mobile stock is up 3.2% over the same period.
Investors are waiting to see the complete roll out of T-Mobile’s promised three-day strategy and how competitors will react to it. Consumers, on the other hand, should be glad as they look like the only true winners in this arena. No matter how AT&T, Verizon, or Sprint chooses to respond, the fact is that there are more options for consumers now than before, and they are getting cheaper.