T-Mobile (TMUS -0.46%) is up to its old antics again. Management issued a press release and new ad campaign pointing out its competitors' recent price hikes while promising never to raise customers' rates once they sign up.
Both AT&T (T -1.24%) and Verizon (VZ -0.03%) recently made price adjustments to some old plans to help offset the cost of inflation. T-Mobile, conversely, is allowing old subscribers to stick with their current plans at its current pricing if they want. But management still expects modest improvements in revenue per user and revenue per account while also growing the number of accounts. Here's how.
Pushing subscribers to the MAX
Many of T-Mobile's promotions since the start of the year have focused on getting subscribers to select its top-tier rate plan, Magenta MAX. For example, T-Mobile is giving switchers from Verizon and AT&T $200 per line activated on Magenta MAX. Some promotional discounts and trade-in offers to upgrade devices provide bigger incentives for MAX subscribers.
Management says new subscribers are selecting MAX the majority of the time. However, just 15% of its subscriber base currently pays for the most-expensive plan T-Mobile offers.
In T-Mobile's first-quarter earnings report, management reiterated its expectations that average revenue per account would increase 1% as a result of Magenta MAX adoption. Moreover, the company is putting a greater emphasis on account growth, not just adding lines to existing accounts. And the price hikes from AT&T and Verizon give it a greater opportunity to bring in new accounts.
Switching was already increasing in early 2022, according to T-Mobile CEO Mike Sievert. And T-Mobile generally benefits from increased switching, as it tends to take more customers from AT&T and Verizon than it loses. With the price hikes, many customers are reassessing their service, and T-Mobile is actively pushing them to choose its plan with its latest promotion.
Sievert says it hasn't been worth it recently to try to increase switching with promotions. Once Verizon followed AT&T and hiked its prices, the cost of a promotion was worth it to capture a bigger share of the opportunity.
One survey following AT&T's price increase estimated the carrier could lose as much as 600,000 subscribers over the quarter following the price hike. The survey also found the majority of those leaving AT&T are likely to choose Verizon. But with additional incentives from T-Mobile and its messaging that it won't raise prices, more consumers may be swayed to join the Un-carrier.
AT&T CEO John Stankey doesn't deny he'll lose some customers. "I'm sure we're going to have some degree of churn that we drive into this," he said at an investor conference last month. "But it will be accretive in aggregate."
On top of pushing customers to adopt more expensive plans and winning new accounts, T-Mobile is also looking to push additional services. In addition to connected devices like tablets and smartwatches, T-Mobile is also using fixed-wireless home internet service to grow revenue per account and keep customers from switching.
T-Mobile expects to add 7 million to 8 million home internet customers by 2025. The strategy is heavily focused on rural markets as it looks to reach most of this underserved market with its 5G network over the next couple of years. But in the meantime, it's winning customers from the cable giants in urban markets.
The more services T-Mobile can add to an account, the more likely they are to stick with T-Mobile long-term. And while it's not raising prices directly, ancillary services like home internet can have a big impact on T-Mobile's bottom line as it takes advantage of its 5G network capacity.