Months after the popular iPhone 5 was released, T-Mobile USA has announced that it will start selling the phone to its millions of customers and potential future clients, becoming the fourth and the last of the big national carriers to do it.
T-Mobile USA is currently hoping to acquire its rival MetroPCS Communications to boost its current standing among national carriers in the country, as well as to put a stop to the ever declining numbers of customers. The company’s new strategy to sell the iPhone without the standard two-year service contract is seen as a stopgap to its customer losses. It is also throwing away phone subsidies to further lower down the cost of acquiring new phones.
The move is seen as a unique way for the company to entice new customers and to set the company aside from bigger rivals that also sell the iPhone like Verizon Wireless, Sprint Nextel, and AT&T Inc.
T-Mobile USA, a division of a German Deutsche Telekom AG, is now struggling to convince its customers to stay. By eliminating device subsidies and two-year service contracts, it hopes to convince cost-sensitive consumers to stay or opt in to its new aggressive offer. It is currently doing a vigorous marketing campaign to promote the mentioned offers.
The traditional subsidy model by carriers of requiring customers to sign a two-year contract in return for services and a new phone has been criticized by T-Mobile USA as concealing transparency.
The company’s CEO John Legere said late last year that the current industry’s model is “broken” and announced that T-Mobile was planning to offer new service plans to its customers.
T-Mobile specifically hit the current number two carrier, AT&T because it uses the same network gear and technology as T-Mobile. Customers from T-Mobile can be easily accommodated to into the AT&T network because of this.
In his discussion during the iPhone launch last year, Legere said that T-Mobile customers would be paying $1000 less throughout the course of two years compared to those subscribed to services of AT&T. More detailed information are also discussed in T-Mobile’s website by comparing the pricing to AT&T’s current offering.
Such an aggressive campaign does not seem to be unfazed AT&T, with its spokesman Mark Siegel responding simply by saying “whatever”.
According to Legere, the new iPhone plan and aggressive marketing strategy would help stop lower the defection of bill-paying customers this year and would simulate new growth next year. T-Mobile ended 2012 with 33.4 million customers, losing about 515,000 of them during the fourth quarter.
Legere promised progress during each quarter during an interview with Reuters. He mentioned that there will be significant progress during the first quarter and second quarter, with the second showing more discernible progress than the first.
The new T-Mobile plan will now offer the new iPhone 5 for only $99.99 as an upfront price, followed by 24 monthly payments of $20, translating to only $580 for two years. On the other hand, T-Mobile’s rivals are charging their customers an upfront price of $200 including an agreement to use their services for two-years. Those who do not want to sign a contract pay will pay about $650.
Due to slight differences in their current service plans, it can be hard to make accurate comparisons for customers, but many analysts said that the current T-Mobile offerings are below the prices of its rivals.
Ross Rubin, an analyst from Reticle Research, does not think customers are fazed by contracts as what T-Mobile claims. However, he conceded that customers may find the lower upfront for phones attractive and that T-Mobile’s addition of the popular Apple product will help stem the defection of its customers. “Not having the iPhone 5 was certainly a big hole in its portfolio,” said Rubin.
T-Mobile is offering to sell the older iPhone 4 for an upfront price of $69 but will ask customers to commit to pay $20 per month for two years. Smaller upfront fees will also be offered for the latest smartphones from HTC Corp and BlackBerry.
Bigger competitors of T-Mobile indicated that they will be watching the progress of the new plans and would likely be following suit if the said plans prove popular with customers.
T-Mobile’s vice president for marketing, Andrew Sherrard, hinted that the company is also increasing its marketing expenditures but declined to give more details.
The company also announced that it has upgraded its network with more capable data services in at least seven markets using LTE or Long Term Evolution technology. The move is but a reaction to its rivals, who already started to offer faster services.
T-Mobile expects to offer LTE in markets with a population of over 100 million at the middle of the year, while promising to further broaden the LTE coverage to 200 million at the end of 2013.
One of the main strategies of Legere to achieve the company’s goals is to propose the merger with MetroPCS, a process that needs approval from shareholders. There will be a scheduled meeting on April 12, the same date that iPhone will be offered by T-Mobile.
The proposal is not expected to be smooth as two big shareholders, P. Schoenfeld Asset Management and Paulson & Co Inc, are said to be against the merger. The two shareholders believe that the merger would only increase the level of debt of both companies. Legere, however, insisted that the merger would be successful.
“It will be approved despite … several greedy hedge funds that are trying to take a double-dip out of that process,” he Legere.