T-Mobile Needs Its New Family Plan to Fend Off AT&T and Verizon

The company's new $100 family plan is cheaper than the competition, but it needs to make more money for T-Mobile in the long run.

Jul 30, 2014 at 3:00PM

T Mobile
Source: T-Mobile

T-Mobile (NASDAQ:TMUS) is nothing if not brash. Over the past couple years the company has taken AT&T (NYSE:T) and Verizon Communications head-on, essentially forcing both companies to change their pricing strategies in order to keep up with T-Mobile's aggressive offerings.

This week T-Mobile's kicks-off its latest strategy. Starting on July 30 the company is offering a four-line family plan with 10GB of data, 2.5 GB per line, for just $100. That's $60 less than AT&T and the other major U.S. carriers. Customers have to sign up for a Simple Choice Plan over the next two months and the data level drops to just 1GB per line in 2016. 

It's a good deal for customers, at least in the short term, but it could prove a great deal for T-Mobile in the long term. 

Gaining customers and more revenue
Part of T-Mobile's strategy is to lure customers in with great deals, and then sell them additional data later. It's similar to the company's free tablet data for life deal, which gives cellular tablet owners 200 MB of free high-speed data for as long as they have their tablet. The hope is that users will quickly surpass that amount of data each month and then pay for more.

Tmobile Family Plan
How T-Mobile's family plan stacks up to competitors. Source: T-Mobile

The same goes for this latest family plan deal. T-Mobile hopes users will get used to the 2.5 GB of data, and then once 2016 comes around they'll pay more money each month once the data allotment drops to 1GB per line.

T-Mobile needs its subscribers to pay more money on the plans they currently have because last quarter the company's average revenue per user (ARPU) dropped about 8%. Right now T-Mobile brings in about $50 in revenue per subscriber and it needs that number to go up.

To do this the company prices its plans very aggressively, which has resulted in tremendous subscriber growth. In the first quarter of this year, T-Mobile added 2.4 million net subscribers, with 1.3 million of those being the sought-after postpaid subscribers. At the time of the Q1 results, T-Mobile added 6 million net subscribers in just 12 months.

Based on those numbers, it's clear the company's subscriber acquisition strategy is working. Those new customers helped boost T-Mobile's revenue 15% year over year, but the company posted a net loss of $151 million, down from its profit of $107 million a year earlier.

And that's why T-Mobile needs its new family plan strategy to work. The company has had no problem adding new subscribers, but it needs to grow ARPU in order to drive its profits back up. Later this week T-Mobile will post its Q2 results, and hopefully we'll see the average revenue per user increase. If it does go up, it'll likely be a slow progression as some of the company's strategies go into effect.

But with the latest $100 family plan offering, it appears T-Mobile is content to build its customer base even stronger before it focuses too much on ARPU. And in the end, the company may be able to do both. T-Mobile's churn rate, the percentage of subscribers it loses each quarter, is just 1.5%. If it can maintain this low churn rate and ultimately convince its subscribers to pay just a little bit more each month, T-Mobile will not only eat into AT&T's customer base, but will be profit handsomely as well.

Chris Neiger has no position in any stocks mentioned. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers