Here's What T-Mobile's Free Video Offer Means To AT&T and Verizon

The Un-carrier is making another bold "free data" offer, and this one may be too big for a lot of its rivals' customers to pass up.

Daniel B. Kline
Daniel B. Kline
Nov 14, 2015 at 12:00PM
Technology and Telecom

Whenever T-Mobile (NASDAQ:TMUS) holds a media event, the rest of the telecom industry has to pay attention.

In past "Un-carrier" press conferences, the company has announced everything from the end of overage billing to dropping device subsidies and two-year contracts, as well as offering access to popular streaming audio services that won't count against the user's high-speed data allotment.

The Un-carrier X announcement was no different. T-Mobile CEO John Legere took the stage and delivered the company's latest move -- its customers will be able to view video from a number of major streaming players without it counting against their data cap. Legere joked from the stage that AT&T (NYSE:T)Verizon (NYSE:VZ), and Sprint (NYSE:S) would all take notice in their own fashion.

Legere is every bit the showman. Source: T-Mobile 

"I also want to have a special shout-out to the thousands of people from AT&T and Verizon who have been assigned by their executive team to watch everything we do," he said in his opening remarks. "I also want to send a special shout-out to everyone at Sprint who has been assigned to watch everything we do and copy it by tomorrow."

Legere was poking fun at his rivals -- repeatedly calling AT&T and Verizon "dumb and dumber," but the video deal he announced, called "Binge On," does strike right at the core of the two leading wireless providers.

What is Binge On?
Essentially T-Mobile is now doing for video what it previously did for audio: It's offering free streaming that does not count against a user's high-speed data allotment from providers including HBO, Hulu, Netflix, Showtime, Sling TV, WatchESPN, and a bunch of other well-known services (including AT&T's DIRECTV and Verizon's Go90). The company explained how it worked in a press release:

Powered by new technology built in to T-Mobile's network, Binge On optimizes video for mobile screens, minimizing data consumption while still delivering DVD or better quality (e.g. 480p or better). That means more reliable streaming for services that stream free with Binge On, and for almost all other video, it means T-Mobile Simple Choice customers can watch up to three times more video from their data plan. And, as always, T-Mobile has put customers in total control with a switch to activate or deactivate Binge On for each line in their My T-Mobile account. 

Binge On gives customers the ability to watch a lot of video without using any of their allotted data. This may be a very tempting offer to AT&T, Verizon, and Sprint customers at a time when video use -- and the data overages associated with it -- have been rising.

How big a problem is this?
AT&T, Verizon, and Sprint make a whole lot of money from overage charges. The T-Mobile CEO said the other carriers would charge $2.4 billion overage fees this year. But that number was not the only problematic one, he said, pointing out that the amount people will pay in 2015 for data they didn't use will be $45 billion.

"They want it to be confusing and complex," explained Legere. "It's a Catch-22."

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Essentially, he said, consumers with limited data have a choice to make. They can either keep their plan at its current data allotment and risk overage charges, or upgrade and risk paying for data they don't use.

"That $2.4 billion is a drop in the bucket that we're already trying to attack," he added. "Overbuying, that's it, $45 billion a year is confiscated after you don't use it."

Essentially, Legere charged that Verizon and AT&T have built their business model on getting customers to either go over their data allotments or pay for more data than they need. 

T-Mobile is throwing down the gauntlet
With Verizon already dropping contracts and AT&T pushing more customers away from them (and T-Mobile paying off early-termination fees for any switching customer who has them anyway), every customer is essentially a free agent. That means that T-Mobile's video offer may become very attractive to customers with other carriers in a month where they get hit by a big overage charge or one in which they notice they paid for far more data than they used.

T-Mobile has already been gaining customers faster than its rivals, and Binge On should increase the flow of people from AT&T, Verizon, and Sprint to the Un-carrier. True, 480p video may not be high enough quality for some people, but given the option to turn it off situationally, it's hard to see that as a major negative. 

Legere's company is literally offering customers something for nothing. That's a tough deal to pass up and it should be very tempting to people who watch (or want to watch) a lot of video, and who are now paying AT&T, Verizon, and Sprint dearly for the privilege.