Wireless carriers added postpaid phone customers at a blistering rate during the pandemic year of 2021. T-Mobile (TMUS +0.11%) added 2.9 million postpaid phone customers, a 32% increase over the prior year, while AT&T fared even better, with 3.2 million postpaid phone net adds. Verizon struggled in comparison but still added customers over the course of the year.
The wireless business is now slowing down. AT&T is gaining subscribers at a much slower rate, and Verizon is losing subscribers. T-Mobile, the smallest of the three, is holding up much better. But the bottom line is that the three wireless carriers are going to have to fight tooth and nail to win subscribers in a much tougher environment.
NASDAQ: TMUS
Key Data Points
Going premium
T-Mobile is having the most success navigating the slowdown. The company tacked on 760,000 postpaid net customers in the second quarter, outpacing its rivals by a long shot, and its postpaid phone churn was the best in the industry for the first time ever. The company has built a reputation over the years as a cheaper and generally friendlier alternative to AT&T and Verizon, and that's clearly resonating with customers.
When T-Mobile merged with Sprint, part of the agreement was that it wouldn't raise prices for three years. That period is now over. Although T-Mobile has yet to follow AT&T and Verizon by boosting prices on its existing plans, it has launched new plans that push pricing higher.
In April, T-Mobile debuted its Go5G Plus plan. The main draws of this new plan were that existing customers would always get the same deals on new devices as new customers and that customers could upgrade their phones after two years. Wireless carriers often draw in new customers with big discounts on smartphones initially, but those discounts tend to vanish when it's time to upgrade.
The Go5G Plus plan pushed the top end of T-Mobile's pricing closer to that of AT&T's and Verizon's, although T-Mobile remained the cheaper option when more than one line was added. Earlier this week, the company rolled out an even pricier plan, Go5G Next, that pushes pricing well beyond its rivals.
The only meaningful change, compared to the Go5G Plus plan, is that the Go5G Next plan allows customers to upgrade their phones at least once per year or as often as every six months -- as long as they've paid off 50% of the cost of the phone. This privilege comes at a steep price.
A single line on this new plan will cost $100 per month, while four lines will cost $225 per month. In both cases, T-Mobile's new plan is substantially more expensive than the competition.
There's certainly a market for ultra-premium phone plans that include frequent device upgrades. T-Mobile found that 10% of people it surveyed listed upgrading to the latest smartphone every year as a top priority.
Boosting revenue and reducing churn
One reason why churn across the wireless industry is so low is that to switch providers, a customer must have already paid off their phone in full. Churn is much higher in the world of prepaid plans, where customers generally buy their devices outright. For T-Mobile, prepaid churn was 3.01% in the second quarter.
With this new plan, customers who upgrade every year will never fully pay off their phones. They won't reach the point where their phone is paid off and switching providers is less onerous and expensive. While the appeal of this pricey plan is limited, those who choose it are likely to stick with T-Mobile for the long haul.
The new plan should also help boost T-Mobile's average revenue per customer. Go5G Next is $10 more expensive per line per month than Go5G Plus and substantially more expensive than the company's lower-end plans.
T-Mobile is thriving in a tough environment. Its new high-end plans could help draw away the most lucrative type of customer from its rivals.
