T-Mobile's (NASDAQ:TMUS) "un-carrier" initiative has attracted a lot of attention. So far, the company has done away with contracts and subsidies, given subscribers free international roaming, and promised free lifetime tablet data. But T-Mobile isn't finished: AT CES in January, T-Mobile will roll out "Un-Carrier 4.0."
While T-Mobile's new initiatives have won it plenty of new subscribers (it's the nation's fastest-growing carrier), this next step could be particularly detrimental to Sprint (NYSE:S), Verizon (NYSE:VZ) and AT&T (NYSE:T).
Will T-Mobile pay for early termination fees?
Some Sprint, Verizon, and AT&T subscribers may have heard of T-Mobile's new policies and wanted to switch but couldn't because it didn't make financial sense to do so. Getting out of wireless contracts is costly -- early termination fees often total several hundred dollars.
But according to TmoNews, a T-Mobile-focused blog, the company's next step will be to buy subscribers out of their contracts with other carriers. In particular, T-Mobile will target families with multiple lines. As TmoNews notes, this makes a lot of sense. For families with devices on different upgrade cycles, it's extremely difficult to make the switch. Paying for new customers might cost T-Mobile money in the short run, but it could net it millions of new, valuable subscribers.
Verizon, AT&T, and Sprint couldn't respond even if they wanted to -- T-Mobile doesn't have early termination fees because it doesn't use the two-year contract model. If you're a T-Mobile subscriber and want to cancel your service, assuming you didn't finance your phone, you won't have to pay anything (if you did, you have to pay off the remaining balance).
T-Mobile has dropped hints in the past
At this point, the report remains just a rumor, but it makes a lot of sense. Investors don't have to wait too much longer to see it confirmed or denied (CES is on Jan. 8), but if it turns out to be true, I wouldn't be surprised.
During T-Mobile's third-quarter earnings call, management discussed the phenomenon of the family plan extensively, and what it expected to do about it in terms of stealing subscribers from other carriers. T-Mobile's CEO John Legere remarked:
I would predict that family plans will quickly become a pain point for consumers, because I think it's pretty clear now that family plans were not created for the benefit of the families. ... The family plan itself will become a pain point. ... We'll do what we do best, which is solve the pain points for individual pieces of the family and put pressure on the other carriers.
Buying out families to get them to switch will obviously go very far in putting pressure on the other carriers and attacking the family plan business model.
How will Sprint, AT&T, and Verizon be affected?
To be clear, AT&T and Verizon still have a big advantage over T-Mobile -- their networks are simply better. But for subscribers who are unhappy with their service, or for those who are looking to save money, Un-Carrier 4.0 could prove highly attractive.
It's indisputable that T-Mobile's new moves have had an impact on the industry: After T-Mobile rolled out JUMP, Sprint, Verizon, and AT&T announced similar policies. Earlier in December, AT&T went further, rolling out a plan that would save subscribers money if they paid for their handsets themselves. Even if Un-Carrier 4.0 proves to be something else entirely, investors in AT&T and Verizon should still keep an eye on T-Mobile. The company's innovations have been successful at attracting new subscribers already; as T-Mobile continues to play offense, it could capture even more.
Sprint is a bit of a wild card. This time next year, it might not matter -- if SoftBank can raise the financing, T-Mobile and Sprint could soon be one entity. If the two companies merge, any of Sprint's subscribers who flock to T-Mobile would ultimately come back to Sprint.
Regardless, T-Mobile's new policies created major trends in the wireless industry in 2013, and the company could be about to start 2014 with a bang.
Sam Mattera and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.