T-Mobile is quickly becoming one of the most consumer-friendly companies in the United States. That hurts shareholders of Verizon and AT&T. Source: T-Mobile.
T-Mobile (TMUS -0.79%) is at it again. On Tuesday, the company continued its role of wireless agitator when CEO John Legere announced its newest plans. Through the "Data Stash" to its updated Un-carrier plan, T-Mobile allows its customers to roll over unused data month to month for up to a year. Even better, this service is included free of charge and comes with a complimentary 10GB of 4G LTE data for new and existing customers.
Legere used a relatable example to hammer home the message about data plans:
Can you imagine your gas station siphoning unused gas from your car each month? The U.S. wireless industry is even worse. Americans have been gamed by the carriers into buying huge data plans -- all to avoid getting screwed with overage penalties. Only to find out they bought more than they need which is then confiscated by the carrier. For the consumer it's lose-lose. That data is rightfully yours.
This might be a win-win for T-Mobile and its customers, but the same can't be said of competing carriers and their investors.
Hitting the industry where it hurts
If you've been shopping for a wireless plan recently, you might have noticed the overall billing structure has changed. In the past, wireless plans centered on minutes of talk and, at one time, actual texts. Now, many wireless plans are essentially giving those services away as unlimited while they focus on monetizing data plans. For perspective, AT&T's (T 0.99%) Mobile Share Value pricing for data shows how valuable data is for carriers:
| Shared Data | 300 MB | 1 GB | 3 GB | 6 GB | 10 GB |
|---|---|---|---|---|---|
| Monthly Cost | $20 | $25 | $40 | $70 | $100 |
| Incremental Revenue Per GB | -- | $7.14 | $7.50 | $10.00 | $10.00 |
Source: AT&T Incremental Rev Per GB Calculation: (Higher GB cost -Lower GB cost)/(Higher GB amount-Lower GB amount).
You can clearly see AT&T seeks to monetize its data plans. A more interesting note is its pricing policy in the range provided. If you look at the incremental revenue per additional gigabyte, you can see they are actually more expensive per gigabyte as you buy larger buckets of data. Suffice to say, data is quickly becoming the differentiation factor when it comes to wireless phone pricing.
T-Mobile is not playing by the rules; Verizon sees margin "pressure"
Although Verizon (VZ 1.33%) has typically been cited as the "luxury" wireless company -- CEO Lowell McAdam once said "[w]e never have and never will lead on price -- it appears the company is hedging somewhat on that proposition. Recently, Verizon warned of short-term pressure on earnings per share as a result of promotional offers, among other causes. AT&T similarly mentioned margin compression in this context. Although not specifically stated, these are widely accepted to be the wireless giants' responses to aggressive discounting tactics from T-Mobile and a newly refocused Sprint (S). With T-Mobile now attacking the sacred cow of data, things could get worse.
For years, the wireless industry was a comfortable oligopoly ruled by AT&T, Sprint, and Verizon. T-Mobile, though, has attacked the incumbents with its Un-carrier initiatives. By doing away with device subsidies, the company can avoid many of the things customers hate about traditional wireless carriers -- mainly, the two-year contract.
Under the brash Legere, T-Mobile has gone from a bit player to nearly overtaking Sprint as the No. 3 carrier by number of subscribers. According to research firm Strategy Analytics, T-Mobile now boasts of nearly 53 million U.S. users versus nearly 55 million for Sprint. Sprint has recently joined T-Mobile as an aggressive discounter with its "Cut Your Bill in Half" promotion.
Sprint is also looking into further emulating T-Mobile by perhaps scrapping device subsidies. During an investor conference call, new CEO Marcelo Claure discussed potentially eliminating device subsidies in 2015, although no official decision has been made. If Sprint continues down its rival's path of consumer-friendly policies, those short-term margin pressures for Verizon and AT&T could become long-term issues.
