Telecom & Wireless

Can Netflix Save T-Mobile?

T-Mobile
Source: courtesy of T-Mobile US Inc.
Desperate times call for desperate measures. That may be an old saw, but it appears to remain relevant as T-Mobile US Inc.’s (NYSE: TMUS) CEO said on Wednesday that the telecom carrier will give customers who buy a new Samsung phone from the company a one-year subscription to Netflix Inc. (NASDAQ: NFLX). Details of the offer are due later this week.

T-Mobile added 2.1 million net new subscribers in the fourth quarter of 2014, and it now claims 55.9 million total connections on its network. Larger competitors Verizon Communications Inc. (NYSE: VZ) and AT&T Inc. (NYSE: T) added 2.1 million and 1.9 million subscribers, respectively. Sprint Corp. (NYSE: S) added nearly 1 million in the fourth quarter.

That T-Mobile was able to keep pace with the two industry giants was a good start, but the smaller company needs to gain ground, not just stay even. In February, T-Mobile offered a pricey new trade-in package for business owners, and now this offer to consumers adds even more to its promotional spending. How long can T-Mobile continue to spend large amounts of cash to attract new customers?

ALSO READ: The 10 Top US Wireless Trends for the Big 4 Carriers

While pricing may be an enticement, the most powerful argument for not switching to T-Mobile is the company’s low ratings for service among America’s four largest carriers. In the recent J.D. Power U.S. Wireless Network Performance Study, T-Mobile did poorly, although it topped Sprint in several categories. T-Mobile barely did better in a recent RootMetrics report.

Paying less for lower quality is hardly a winning combination, so T-Mobile now wants to offer a different kind of enticement. Netflix is certainly a household word in the United States by now, but the company already has nearly 40 million U.S. subscribers and its growth in the country has slowed. Most Americans who want a Netflix subscription already have one, and even among those who are not already subscribers, many have probably tried the service and decided not to keep it.

Netflix alone will not save T-Mobile, and depending on the terms of the deal among those two and partner Samsung, the offer may even hurt T-Mobile’s bottom line. Last year the company posted a profit of just $247 million on revenues of $29.6 billion. At some point shareholders are going to want to see a better payback.

T-Mobile’s stock was inactive in Thursday’s premarket trading, having closed at $32.34 on Wednesday, in a 52-week range of $24.26 to $35.50. The consensus price target on the stock is $37.23.

ALSO READ: Is It Finally Safe to Buy AT&T After Its Ouster From the Dow?

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