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Can T-Mobile's New Phone Plan Win Subscribers?

By Adam Levy - Mar 24, 2020 at 10:00AM

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The Un-carrier is launching its $15-per-month 5G data plan early.

With Americans practicing social distancing, they've become more reliant on phone and internet connections than ever. All the major wireless carriers have suspended data caps for those that don't already have unlimited access. They're also opening mobile hotspot capabilities for those without access and expanding data allowances to ensure greater home connectivity as more people work from home.

All these moves ought to lead to greater subscriber retention in the coming months.

But T-Mobile (TMUS 0.55%) is making a move that it hopes will win over consumers that may have been displaced from work and need to find ways to cut back on their spending. The wireless carrier will start offering its $15 per month T-Mobile Connect prepaid plan on March 25. The company originally planned to start offering the low-priced plan after its merger with Sprint (S) closed, but it made the move early in response to COVID-19. Will it help it steal subscribers from rivals AT&T (T -0.66%) and Verizon (VZ -0.43%)?

T-Mobile management sitting at a table in front of microphones.

From left to right: T-Mobile COO Mike Sievert, CEO John Legere, and CFO Braxton Carter. Image source: T-Mobile.

5G for $15 per month

The T-Mobile Connect plan is as bare-bones as it gets these days. Customers get unlimited talk and text and 2 GB of data allowance. Customers with a 5G-capable handset will be able to access T-Mobile's 5G network where it's available.

But unlike T-Mobile's other plans, customers are completely cut off when they go over the 2 GB data cap. T-Mobile simply slows speeds for customers on its existing plans with data caps. And if subscribers are also using their T-Mobile Connect plan for tethering to other devices, they're going to reach that 2 GB limit very quickly.

In other words, T-Mobile Connect is a plan for those that only need the bare minimum to stay in touch with friends and family. And it might be a great plan for those struggling financially given the response to the novel coronavirus has led to millions of job losses and others seeing their hours cut back.

But those consumers may be better off cutting their typical home internet service and relying exclusively on their wireless connections. With the generous data allowance policies from all carriers noted above, consumers trying to stay connected while saving money may find it a more viable option in the near term.

Inviting churn

Still, T-Mobile's strategy is sound. Management wants to do everything it can to increase subscriber switching at a time when they have very little incentive to do so. 

The fourth quarter saw an uptick in subscriber switching, which actually led to higher churn rates at T-Mobile. Management suggested it would have been better off if subscriber churn were even higher, as it expects to be a net share winner when consumers are deciding which carrier to go to next.

To that end, introducing a new low-priced plan will invite consumers to -- at the very least -- take a look at what T-Mobile has to offer, potentially leading to greater switching. 

The challenge, however, is that with the higher amount of switching in the fourth quarter, many consumers opted into new device payment plans that could last as long as three years. While they can buy out the contract on those devices, customers could forfeit promotional credits they signed up for. Moreover, paying a lump sum now would defeat the purpose of finding a lower-priced plan for many.

Introducing T-Mobile Connect early will only serve to help T-Mobile. While the low-priced plan should have strong appeal for consumers in times when many are looking to cut back on monthly expenses, the unique characteristics of social-distancing efforts and increased reliance on connectivity make it a tough sell. Even then, consumers looking for exactly what the T-Mobile Connect plan has to offer may be locked into device payment plans for months or years to come. As such, wireless industry churn may stay low for a while, pressuring T-Mobile's overall subscriber growth.

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Stocks Mentioned

T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
TMUS
$137.56 (0.55%) $0.75
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$51.42 (-0.43%) $0.22
Sprint Corporation Stock Quote
Sprint Corporation
S
AT&T Inc. Stock Quote
AT&T Inc.
T
$21.17 (-0.66%) $0.14

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