T-Mobile (NASDAQ:TMUS) CEO John Legere seems to enjoy trolling his rivals at AT&T (NYSE:T) and Verizon (NYSE:VZ). He calls them "The Duopoly" and has taken special delight in what he sees as their struggles in offering unlimited data.
Legere has frequently messaged his 4.5 million Twitter followers about what he sees as his rivals' shortcomings, and his company recently shared data from a third-party provider showing that AT&T and Verizon have seen their networks slow over the past few months.
To further drive that revelation home, T-Mobile has raised its monthly data cap for prioritizing traffic. Under the previous system, heavy data users (about the top 2% of customers) saw their network speeds slowed during peak network usage times after they used more than 32GB in any given month. That cap has been raised to 50GB, while Verizon and AT&T have kept their prioritization threshold at 22GB.
What is T-Mobile doing?
The company is grandstanding, but it's doing so for a reason. The wireless carrier wants to show that its network is built for handling unlimited data traffic while Verizon's and AT&T's aren't. The actual change to the threshold impacts relatively few customers.
Increasing the prioritization threshold (which all three companies are careful to not call a cap) only impacts around 1% of customers. To put the number into perspective, average monthly data used per smartphone sits at 2.8 GB now and is forecast to hit 8.9 GB in 2022, according to 451 Research, both well below even the lowest threshold.
T-Mobile Chief Technology Officer Neville Ray even pointed out how meaningless this change will be for most people in the blog post announcing it: "50GB of data usage means a T-Mobile customer is basically the top 1% of data users, and to put it in context, you could stream a full 2 hours of Netflix every single day -- that's 30 SD [standard definition] movies -- and never even reach that point! You'd still have roughly 8 GB to go."
Ray explained that prioritization only happens when a customer has exceeded the data threshold and the network is experiencing congestion. He said that was already rarely happening with T-Mobile, but made it clear that he believes (as Legere has often stated and recent speed test data backs up) that Verizon and AT&T are having network problems.
"If you have a lot of congestion in your network (I'm looking at you, Verizon & AT&T), these lines can be long and deprioritized customers can be waiting a long time," Ray wrote.
Increasing the prioritization threshold comes after T-Mobile decided to offer customers with two or more paid voice lines on the carrier's normal T-Mobile One plan Netflix for free. That's a move that will increase network traffic, which Ray noted was already up 50% year-over-year.
This is T-Mobile doing everything it can to taunt its rivals. It's daring its customers to use more data while giving them a free service which facilitates that. This is a running back breaking a 90-yard touchdown run and choosing to strut backward for the last 10 yards before doing a back flip at the goal line just because he can.
Will this work?
T-Mobile has invested heavily in its network and it now tops one of the two widely accepted reports on network quality. That has taken a question -- Which company has the best wireless network? -- which used to have a clear answer, and made it murky.
That's good news for T-Mobile, which charges less than Verizon, meaning that with everything else being equal, people should switch. Offering Netflix and making a relatively meaningless move to raise its prioritization threshold simply seeks to hammer the idea home that Verizon and AT&T no longer enjoy the network advantage they once did.
That's a long-range strategy that has led to 17 straight quarters in which T-Mobile has added at least 1 million wireless customers. It's an overall effort -- led by Legere's bravado -- to chip away at consumer perception of Verizon and AT&T as premium brands, and that effort appears to be working.
Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NFLX, TWTR, and VZ. The Motley Fool recommends TMUS. The Motley Fool has a disclosure policy.