Entner: T-Mobile furthers 'uncarrier' strategy with innovative handset upgrade policy

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Roger Entner

T-Mobile made three announcements today:

  • 157 million LTE population coverage
  • The new Jump device program
  • Family plans for non-contract customers

The general expectation was that T-Mobile would announce the 100 million LTE population coverage milestone by mid-year 2013. Instead, T-Mobile topped that by announcing 157 million population coverage, which came as a welcome surprise and shows how T-Mobile has executed over the last year. The LTE coverage comes from overlaying LTE on existing T-Mobile and Metro PCS sites as the company did not build any new cell sites to compete in new areas. The expanded LTE coverage narrows the gap between T-Mobile and the higher priced options from AT&T and Verizon. This announcement demonstrates again how competitive the U.S. market is as LTE has become table stakes. Furthermore it reinforces the LTE leadership that the United States enjoys in the world: Verizon covering 300 million people, AT&T 200 million people, T-Mobile covering 157 million people and Sprint approximately covering 100 million people, while U.S. Cellular covers about half of its footprint with LTE.

The United States has the fastest handset replacement cycle in the world. We change our handsets on average once every 21.7 months. There are three major events that make people buy a new phone: Every time a new model comes out (iPhone anyone), every two years when the device is available at the discounted price or whenever the phone breaks. The new Jump program is primarily aimed at the first two groups. For only $10 per month, T-Mobile customers can upgrade their device twice a year, exchange their old device purchase agreement for a new one and get device insurance bundled in free of charge. The current device insurance program that many T-Mobile customers purchase to protect against device theft and damage costs $12 per month. It's a no brainer to switch to the Jump program for less money but more value. A secondary effect for T-Mobile is that customers with newer devices have higher customer satisfaction than customers with older devices and are therefore less likely to churn. T-Mobile and its reverse logistics provider just have to make sure that the shipping, handling, refurbishing and the price decline of the old device are less than $60 if the customer replaces the device every six months or $120 if the customer replaces the device every year. The only refurbished device on T-Mobile's website, a Samsung Gravity TXT, had a $67.88 discount. The additional benefit is that T-Mobile will be able to offer lower priced refurbished devices, including very recent devices at below the cost of a new device, which should be welcome news for people who want a recent device but either do not want or cannot pay full retail. Overall this is a very competitive move that will speed up the handset replacement cycle and in the opposite direction of AT&T and Verizon Wireless. Both AT&T and Verizon Wireless extended earlier this year the period that it took to get a fully discounted device from 22 months to 24 months.

The most impactful initiative is the extension of family plans to no-contract connections. T-Mobile is the first company that extended the most popular wireless program in America to no-contract customers. This lowers the total cost for a family compared to T-Mobile's competitors in the fastest growing subscriber segment. It is a clear attack on the carrier-branded no-contract offers as well as StraightTalk, H20 Wireless, as well as Boost and Virgin. The new price plan also allows the no-contract segment to expand as some consumers who were previously forced into a contract can now receive family plan benefits without having to sign a contract. If the same churn reducing effect holds true to no-contract as what has happened to contract customers, we can expect T-Mobile's customers to quickly follow suite.  

Roger Entner is the Founder and Analyst at Recon Analytics. He received an Honorary Doctor of Science from Heriot-Watt University. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications. Follow Roger on Twitter @rogerentner.                
 

Update:  This column was updated July 10 to reflect T-Mobile's LTE deployment covering 157 million POPs instead of 150 million.