Is T-Mobile About to Steal Millions of Verizon, AT&T, and Sprint Customers?

T-Mobile's (NYSE: TMUS  ) "un-carrier" initiative has attracted a lot of attention. So far, the company has done away with contracts and subsidies, given subscribers free international roaming, and promised free lifetime tablet data. But T-Mobile isn't finished: AT CES in January, T-Mobile will roll out "Un-Carrier 4.0."

While T-Mobile's new initiatives have won it plenty of new subscribers (it's the nation's fastest-growing carrier), this next step could be particularly detrimental to Sprint (NYSE: S  ) , Verizon (NYSE: VZ  ) and AT&T (NYSE: T  ) .

Will T-Mobile pay for early termination fees?
Some Sprint, Verizon, and AT&T subscribers may have heard of T-Mobile's new policies and wanted to switch but couldn't because it didn't make financial sense to do so. Getting out of wireless contracts is costly -- early termination fees often total several hundred dollars.

But according to TmoNews, a T-Mobile-focused blog, the company's next step will be to buy subscribers out of their contracts with other carriers. In particular, T-Mobile will target families with multiple lines. As TmoNews notes, this makes a lot of sense. For families with devices on different upgrade cycles, it's extremely difficult to make the switch. Paying for new customers might cost T-Mobile money in the short run, but it could net it millions of new, valuable subscribers.

Verizon, AT&T, and Sprint couldn't respond even if they wanted to -- T-Mobile doesn't have early termination fees because it doesn't use the two-year contract model. If you're a T-Mobile subscriber and want to cancel your service, assuming you didn't finance your phone, you won't have to pay anything (if you did, you have to pay off the remaining balance).

T-Mobile has dropped hints in the past
At this point, the report remains just a rumor, but it makes a lot of sense. Investors don't have to wait too much longer to see it confirmed or denied (CES is on Jan. 8), but if it turns out to be true, I wouldn't be surprised.

During T-Mobile's third-quarter earnings call, management discussed the phenomenon of the family plan extensively, and what it expected to do about it in terms of stealing subscribers from other carriers. T-Mobile's CEO John Legere remarked:

I would predict that family plans will quickly become a pain point for consumers, because I think it's pretty clear now that family plans were not created for the benefit of the families. ... The family plan itself will become a pain point. ... We'll do what we do best, which is solve the pain points for individual pieces of the family and put pressure on the other carriers.

Buying out families to get them to switch will obviously go very far in putting pressure on the other carriers and attacking the family plan business model.

How will Sprint, AT&T, and Verizon be affected?
To be clear, AT&T and Verizon still have a big advantage over T-Mobile -- their networks are simply better. But for subscribers who are unhappy with their service, or for those who are looking to save money, Un-Carrier 4.0 could prove highly attractive.

It's indisputable that T-Mobile's new moves have had an impact on the industry: After T-Mobile rolled out JUMP, Sprint, Verizon, and AT&T announced similar policies. Earlier in December, AT&T went further, rolling out a plan that would save subscribers money if they paid for their handsets themselves. Even if Un-Carrier 4.0 proves to be something else entirely, investors in AT&T and Verizon should still keep an eye on T-Mobile. The company's innovations have been successful at attracting new subscribers already; as T-Mobile continues to play offense, it could capture even more.

Sprint is a bit of a wild card. This time next year, it might not matter -- if SoftBank can raise the financing, T-Mobile and Sprint could soon be one entity. If the two companies merge, any of Sprint's subscribers who flock to T-Mobile would ultimately come back to Sprint.

Regardless, T-Mobile's new policies created major trends in the wireless industry in 2013, and the company could be about to start 2014 with a bang.

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Read/Post Comments (17) | Recommend This Article (27)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 21, 2013, at 5:50 PM, Gertrude wrote:

    T-Mobiles service sucks!

  • Report this Comment On December 21, 2013, at 6:58 PM, whereismysignal wrote:

    T-mobile first needs to add more towers. Reception is HORRIBLE. The only reason I stay with T-mobile is because I was under contract, 4 lines. I upgraded to the new plan, saved some money, but if I dare go inside a building I have little or no reception. This has been a common complaints for years, with nothing done about it. If you have Verizon, keep it! When I spoke to a T-mobile rep, he himself admitted Verizon had much better reception, his only argument he could give was that T-mobile is cheaper monthly. Not a good selling point when you expect reception. It may be a bit more expensive, but when you pay for service, you expect to get service. T-mobile, 1 out of 5 stars for reception.

  • Report this Comment On December 21, 2013, at 8:20 PM, AcuraT wrote:

    One thing this article does not address - this potential action by T-Mobile would prevent Sprint from buying it out. Why? Because the Justice Department would LOATHE to eliminate the fourth place cell phone company that is the constant discounter. T-Mobile's continuing pressure on the other three only strengthens the Justice's case to keep the forth company independent - to give consumers the greatest opportunity to find an alternative to the "Big 2" (AT&T and Verizon). That in itself would make this a huge action on T-Mobile's part.

  • Report this Comment On December 22, 2013, at 1:05 AM, 101AirborneLRRP wrote:

    T-Mobile is horrible when it comes to reception and that is in a major California City. I cancelled and paid the penalty just to get away from them. I would never go back to T-Mobile.

  • Report this Comment On December 22, 2013, at 9:14 AM, Fujhockey wrote:

    Years ago I had T-Mobile service and was disappointed, however now I have gone back and it's been good. It might not be the best service, but it's good enough for the rates they offer.

  • Report this Comment On December 22, 2013, at 5:14 PM, spinod wrote:

    If they do this, so long Verizon!

  • Report this Comment On December 22, 2013, at 5:39 PM, CrazyDocAl wrote:

    T-Mobile needs to invest in towers. I don't know anyone who is on T-mobile.

  • Report this Comment On December 22, 2013, at 6:55 PM, MaMaWilson wrote:

    Build more towers in eastern North Carolina and I will be back!

    Was late for job interview because, outside of cities or highways, there is NO service!

  • Report this Comment On December 22, 2013, at 7:18 PM, Risky88 wrote:

    T-mobile rep actually yelled at me and got into a huge argument with me over the phone over who was the best carrier.

    I do not know anyone in the entire world switching to that service but only moving away.

    I went to Spring for a reason and if Sprint buy T-mobile.

    I am gone

    AT&T or Verizon would be happy to take my money I'm sure of it!

  • Report this Comment On December 22, 2013, at 9:26 PM, ogroup069 wrote:

    Verizon has better coverage and many towers, but at a higher cost. T-Mobile coverage is not anywhere near what Verizon has.

    T-Mobile spend the money on the towers and keep your existing customers happier.

  • Report this Comment On December 22, 2013, at 10:02 PM, omroi2001 wrote:

    I have Sprint and the reception is horrible. I have the all inclusive for $69.99 and it sounds great on paper but the reception stinks. The GPS at times doesn't find you or loses the server. I have been out of town a few times and the Sprint GPS has left me stranded, late at night in the middle of no where. I have to drive around in circles until it goes online.

    Forget about Sprint...................

  • Report this Comment On December 22, 2013, at 10:51 PM, mommy1190 wrote:

    We need more towers in Conway, South Carolina, too!! It's a community with lots of highway and folks NEED mobile service for security!! Please spread the span of service across South Carolina!!!!

  • Report this Comment On December 22, 2013, at 11:14 PM, Jeffkory wrote:

    T mobile needs to have way more coverage and much better reception- I'm not proud to be ripped off by at&t but my phone works everywhere- My dads Verizon don't and my nieces t mobile is horrible.

  • Report this Comment On December 23, 2013, at 1:22 AM, Renno913 wrote:

    Despite what all the 'commercials' say, At&T is clearly the better service, however, their customer interaction leaves alot to be desired.

  • Report this Comment On December 23, 2013, at 10:38 AM, phatandfoolish wrote:

    on the day t-mobile does this, i'll be calling verizon and switching

  • Report this Comment On December 23, 2013, at 5:55 PM, fasteddie wrote:

    I have T-mob here on the east coast of Mass and have no problems with reception at all.AT&T absolutely sucked,couldn't get a signal at all from home.Very frustrating not being able to use your mobile phone from your own house!

  • Report this Comment On January 05, 2014, at 2:20 AM, abuzi wrote:

    t- mobile need more towers, in Madison WI t-mobile dosent have towers, and a left Verizon but oi'm going back to Verizon until t mobile build more towers the reception is bad...;;;(((((

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