One of the keys to the recent success of T-Mobile US Inc. (NASDAQ: TMUS) has been its aggressive pricing. The company’s management believes it can draw customers for the number four wireless provider by cut-rate plans that have not been offered by AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ) and Sprint Corp. (NYSE: S) — until recently. Since the T-Mobile moves, the wireless plan business has turned into a price war.
T-Mobile has reversed field by increasing the price of its unlimited data plan by $10 to $80. According to The Wall Street Journal:
The change will take hold later this month. T-Mobile is also building in more tiered data options, in which subscribers pay for fixed allotments of high-speed data that are cheaper than the unlimited plan. The company is adding a new tier with 5 gigabytes of data and boosting data allotments at other tiers. For example, a $50 monthly plan that now offers 500 megabytes of high-speed data will soon give subscribers a full gigabyte.
The Journal quoted Mike Sievert, T-Mobile’s chief marketing officer, saying the reason for the decision was the increased cost of providing the plans.
The decision may give the other three carriers some relief — and perhaps a reason to stabilize price cuts that almost certainly will cut into their earnings.
In response to T-Mobile’s price pressure, AT&T has begun offering plans which have no contracts and offer unlimited voice and data. For years, the staple of the industry was two-year service plans with penalties for subscribers who broke plans early.
The wireless companies fear that their business has become a zero sum game. Total wireless subscribers in the U.S. have plateaued at 300 million. Price has become the only engine to drive revenue and earnings. Lower prices equate to lower profits
Wireless was supposed to be the way out for telecom companies which have lost traditional landline business or years. New price wars have changed the efficacy of that formula. Maybe the price increase by T-Mobile means there will be some change in relentless price cutting.