T-Mobile vs. AT&T: The 'Un-Carrier' Takes Another Swipe at the Telecom Giant

T-Mobile's CEO likes to go after his competitors -- this time, he's going after overage charges.

Apr 10, 2014 at 11:37AM

T-Mobile (NASDAQ:TMUS) CEO John Legere has decided to take on his entire industry.

First he dubbed his company the "Un-carrier" to set it apart from other phone companies. Now as T-Mobile launches a new pricing plan for entry-level customers, he has lashed out at the "predatory" tactics of rivals.  

In a blog post announcing the new $40 Simple Starter plan, Legere explained why T-Mobile's new offer is more than just another new pricing scheme.

"Un-carrier is a movement, not a marketing strategy. We are freeing consumers from the predatory practices of traditional U.S. wireless companies and that includes these plans that start with a low price and a low data limit, but then hit you with insane fees if you send one too many emails," he wrote. "It's wrong! And I personally want to drive those ridiculous schemes out of this industry."

Taking on AT&T

Legere's anger (or his mock anger for business reasons, depending upon how you interpret his sincerity) comes from the way that other carriers -- specifically AT&T (NYSE:T) -- charge customers when they go over their allotted minutes or data.

T-Mobile's new plan charges customers $40 a month for unlimited talk and text and up to 500 MB for 4G LTE data and tethering with no data overage charges. Once a Simple Starter uses his allotted data, he has the option to purchase more. In Legere's blog post he contrasted that with AT&T's entry-level plan, which charges customers for data overages in $20 increments in what Legere called "a massive 44% price hike on those customers least able to absorb overages and bill shock."

With Simple Starter T-Mobile is offering a lower base price than its rivals along with cost certainty for its customers. The company is also putting pressure on its rivals AT&T, Sprint,(NYSE:S), and Verizon (NYSE:VZ) to remove overages from their plans.

Is it working for T-Mobile?

Since T-Mobile began calling itself the "Un-Carrier" in March 2013, the company has attempted to win customers by shaking up how things are generally done in the mobile phone business. That has included simplifying pricing plans, offering customers the ability to upgrade their phones more often, and even paying early termination fees to other carriers. In general Legere's company has targeted its rivals and tried to brand itself as different (and more trustworthy).

That strategy seems to be working. T-Mobile gained more than 4.4 million new customers in 2013, according to a company press release. In 2012 -- before the Un-carrier marketing campaign -- the company lost 256,000 customers.

T-Mobile had 46.7 million customers at the end of 2013 and saw its churn rate drop to 1.7% in the fourth quarter of 2013 from 2.5% in the same period in 2012. Total revenues increased by 5.3% year-over-year to $26.1 billion.

AT&T's wireless phone business had a good year as well and a strong fourth quarter, according to a company release. In Q4 2013, AT&T saw revenue for its phone business increase by 4.5%. The company also reported its lowest ever fourth-quarter churn at 1.11% as well as 1.7 million new phones added to its network during the quarter. The company also saw a 16.8% increase in wireless data revenues over the same quarter in 2012.

T-Mobile's strategy is clearly helping T-Mobile but making AT&T the villain in the story has not yet caused customers to flee the bigger carrier.

Is this good for customers?

T-Mobile may not have knocked off the competition yet, but the company has set off a chain reaction that has forced the other major carriers to react and lower prices, change upgrade plans, and offer data plans that are more clearly defined. Legere has let the genie out of the bottle and there's no way AT&T, Sprint, or Verizon can put it back in. The big carriers don't have to exactly match what T-Mobile is doing -- the cable industry has shown us that simply the presence of a better deal (like a cheaper satellite TV subscription) is not enough to change customer behavior entirely -- but T-Mobile is now a viable option for consumers and is clearly doing business differently.

Once consumers know about T-Mobile's overage-free plan, every time a customer gets hit with a large overage there will be a temptation to switch. The other three major carriers will likely have to address that and either forgive the fees or offer a plan like T-Mobile's.

Before the Un-carrier campaign the wireless industry was largely operating in lock-step with no company willing to kill the golden goose by exposing some of the industry's dirtier tricks. Now the secret is out and the major players will either have to change how they do business or bleed customers to the companies that do. That can only be good for customers. 

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Daniel Kline has no position in any stocks mentioned. He is a Sprint customer. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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