T-Mobile US Inc Won't Give AT&T Inc a Break

AT&T (NYSE: T  ) added 566,000 postpaid customers in the fourth quarter. That was good enough to best Sprint (NYSE: S  ) , but trailed Verizon (NYSE: VZ  ) and T-Mobile (NYSE: TMUS  ) . A huge number of those net new customers were tablet owners -- 440,000.

Now, T-Mobile is attempting to put the hurt on AT&T even more, by attracting those important tablet owners to its wireless network. The Un-Carrier announced "Operation Tablet Freedom" Thursday, offering wireless customers free data and less-expensive tablets.

The value of tablet owners
Tablets using cellular connections in the U.S. increased 46% in 2013, according to NPD. Meanwhile, total U.S. mobile subscribers are increasing only marginally.

For AT&T, in particular, tablet subscribers are a large part of what's buoying subscriber numbers. T-Mobile continues to gain share in handsets, but AT&T and Verizon are both attracting high-end tablet customers. As mentioned, 440,000 of AT&T's net new postpaid subscribes in the fourth quarter were on tablets. Verizon added 625,000 tablet subscribers, but nearly one million more handset subscribers in the fourth quarter.

The situation at Sprint would be much worse without its growing number of tablet subscribers. The company added 58,000 net new postpaid subscribers in the fourth quarter, which belies the nearly 400,000 phone subscribers it lost in the quarter. The carrier added 466,000 tablet subscribers for the quarter due to aggressive installment pricing and holiday sales. Sprint's weak performance in handsets recently led to a round of 1,400 job cuts.

T-Mobile, on the other hand, has been hard pressed to add tablet subscribers. The company introduced its free data for life plan in the late fourth quarter, offering 200 megabytes of 4G data every month to tablet owners. Still, the company added just 69,000 mobile broadband subscribers, primarily composed of tablet owners, that quarter.

The new deal
With "Operation Tablet Freedom," T-Mobile is extending its early termination fee reimbursement program to tablet owners. It will let tablet data plan subscribers switch to T-Mobile, trade-in their old tablets, and put that trade-in credit toward the purchase of a new tablet. What's more, that new tablet will be the same price as the WiFi-only model, and T-Mobile will finance it for you. On top of that, T-Mobile is offering an additional gigabyte of 4G data per month in addition to the free 200 megabytes through 2014.

It's an incredibly attractive offer, and new tablet purchasers will struggle to find a reason not to take T-Mobile up on it.

T-Mobile is obviously using the promotion as a loss-leader to attract new handset subscribers. With the growth in tablet data subscribers in the last year, it's not a bad strategy. NPD estimates there are 10.4 million tablet subscribers as of the end of 2013. If T-Mobile can attract just one-fourth of that market, it would be enough to reach its goal of 2 million to 3 million net new postpaid in 2014.

1.2 GB per month appears to be the perfect amount of data for tablet owners too. That same NPD study found that tablet users consumed just under 1 GB per month on average during the fourth quarter.

What's AT&T to do?
T-Mobile's announcement comes shortly after Verizon announced it was adding 1 GB of data for tablets on its "More Everything" plan for just $10 per month. Verizon isn't taking T-Mobile's announcement lightly, as it's already announced that new customers will get a bonus gigabyte of 4G data for life for tablets on its More Everything plan.

AT&T has become increasingly reliant on tablet activations, as has Sprint, and needs to cook up an offer of its own or risk losing subscribers to T-Mobile.

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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 April 13, 2014, at 10:56 PM, Gridlocked wrote:

    T-Mobiles worst nightmare is to have AT&T match every move.

    Who has the cash to keep that up? Not T-Mobile that's for sure.

  • Report this Comment On April 14, 2014, at 11:27 AM, CDNGuru wrote:

    AT&T let's me share my data via WiFi from my phone. So Why do I need to pay an extra $10/mo? Just go buy a cheaper WiFi only model tablet, click share on the phone and go.

    I had TMo for 5 years. The service was spotty at best. When I moved to my new house and couldn't get much more than 1 bar and 3G service, I had to say goodbye to them.

    Now, maybe they've beefed up their network a bit since they got all the AT&T monopoly money. But I don't care. Reliable coverage and 25Mbps LTE is important to me!

    Besides, TMo forced AT&T to lower their prices, so now I'm paying $15 less for the same service. Thanks TMo!

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Adam Levy

Adam has been writing for The Motley Fool since 2012 covering consumer goods and technology companies. He spends about as much time thinking about Facebook and Twitter's businesses as he does using their products. For some lighthearted stock commentary and occasional St. Louis Cardinal mania

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