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T-Mobile and Sprint Are Fighting Tooth and Nail for Lower Wireless Prices

By Chris Neiger - Oct 21, 2014 at 6:43PM

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These two wireless carriers offer the lowest prices around, but Sprint proves cheap plans aren't enough.

In the wireless carrier industry, there's no shortage of deals to woo unhappy customers from their current providers. Lately, carriers are luring in customers with the best iPhone 6 pricing, doubling their data, and paying the most cash for early termination fees on competitors' networks.

But when it comes to the rock-bottom, lowest-priced plans, T-Mobile ( TMUS 2.54% ) and Sprint ( S ) are in a league of their own. This price war is indicative of the heightened competition between the two providers recently.

The cheapest prices around
Let's take a look at the three lowest individual smartphone plans from T-Mobile:

Data

Talk & Text

Cost

500 MB (capped)

Unlimited

$40

2 GB (capped)

Unlimited

$45

1 GB high-speed (unlimited slow data)

Unlimited

$50

Data source: T-Mobile. 

Let's look at those numbers again for moment. T-Mobile offers three individual smartphone plans for $50 or less. Sure, the data is capped at lower amounts than at AT&T and Verizon, but for budget-conscience customers, these are impressive deals. Plus, with a plethora of free Wi-Fi available, low data allotments may not be much of a factor for some customers.

Alright, now let's look at Sprint's lowest individual plans:

Data

Talk & Text

Cost

Unlimited
(iPhone 6/6 Plus only)

Unlimited

$50

Unlimited

Unlimited

$60

Data source: Sprint. 

Sprint's marketing angle is in offering unlimited plans, so it's not exactly comparable to T-Mobile's plans. Still, you can get a great deal with Sprint starting at just $50 for an iPhone 6 or 6 Plus plan with unlimited data. Sprint's also competing heavily with AT&T and Verizon this month by doubling the amount of data users get on family plans.

The dark side of cheap pricing
Attracting new customers with low pricing is a great way to boost subscriber numbers, but it can also hurt revenue. For Sprint, the focus on family share plans and no contracts has pushed down the company's postpaid average revenue per user (ARPU) from $63.59 in fiscal Q1 2013 to $61.65 in fiscal Q1 2014. 

Sprint's hoping the ARPU decline is offset by subscribers signing up for its Easy Pay plan -- which should reduce equipment subsidies the company pays. In an SEC filing, Sprint said, "the combination of these two items is expected to have a net positive contribution to earnings." 

T-Mobile's faced declining ARPUs as well. In its most recent quarterly filing T-Mobile said, "Branded postpaid phone ARPU was negatively affected by the growth of our Value and Simple Choice ("Simple Choice") plans, which have lower monthly service charges compared to traditional bundled plans." 

More than just cost
Sprint and T-Mobile are the nation's No. 3 and No. 4 wireless carries by subscriber numbers, so they're not just competing for the best pricing, they're also trying to outdo each others' networks.

In the first half of this year, T-Mobile leapfrogged Sprint in overall network performance to become the third-best performing network, according to RootMetrics data. T-Mobile's made an aggressive 4G LTE network expansion over the past two years, which has left Sprint's network falling behind.

It's not all bad news for Sprint, though. The company is in the process of building out its new, faster tri-band Spark network. It's available in just 24 cities right now, but that number should climb to 100 cities by the end of 2016. 

Foolish thoughts
For both Sprint and T-Mobile, the main goal right now is to snatch customers away from bigger rivals Verizon and AT&T, and then try to upsell low-end customers to more services later.

For T-Mobile, this appears to be working -- the company gained 1.5 million net new customers in Q2 2014 alone. T-Mobile's main advantage over Sprint comes from its stronger network, and by mid 2015, T-Mobile says it will have upgraded all of its old 2G Edge connections to 4G LTE.

Given the fact that T-Mobile's aggressively marketing itself, offering low prices, and building a strong network, it's hard to imagine Sprint will catch up any time soon. Sure Sprint has more subscribers, but with T-Mobile's current growth, that could soon change. Sprint appears to have priced its plans right, but it needs to convince potential customers that its network is worth switching to -- and that can only happen if the company is willing to build it stronger and faster than T-Mobile can. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Sprint Corporation Stock Quote
Sprint Corporation
S
T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
TMUS
$115.63 (2.54%) $2.86
Apple Inc. Stock Quote
Apple Inc.
AAPL
$165.32 (2.15%) $3.48
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$51.07 (-0.68%) $0.35
AT&T Inc. Stock Quote
AT&T Inc.
T
$23.28 (-0.77%) $0.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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