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Analysts worry T-Mobile USA is courting troublemakers
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T-Mobile USA's push to get more subscribers with potentially weaker credit histories may be a dangerous game, according to a report by Dow Jones Newswires.
Analysts quoted by the outlet point to T-Mobile's decision to tout its Flex Pay program, a pre-paid type of service, as one sign that the carrier may be lowering its credit standards--though the analysts pointed out that they had not seen a material change in T-Mobile's credit standards. The carrier, a unit of Germany's Deutsche Telekom, declined to comment.
The push may reflect T-Mobile's desire to score younger customers who may not yet have credit histories. But T-Mobile risks higher churn, since subscribers who cannot pay their bills will often break their contracts. Analysts pointed to Sprint Nextel, which several years ago loosened its credit standards and suffered major churn as a result--problems that reverberate through to today.
Nonetheless, T-Mobile may be left with little recourse but to woo credit reprobates. The carrier reported 621,000 net new subscriber additions in the fourth quarter of 2008, down from 670,000 in the third quarter of 2008 and 951,000 in the fourth quarter of 2007. The number was the carrier's lowest since the second quarter of 2006. Meantime, flat-rate carriers like MetroPCS are recording record quarters; MetroPCS added 684,000 net subscribers in the first quarter, its best ever.
For more:
- see this article (sub. req.)
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Comments
Posted by Todd Y | April 15, 2009 - 1:37pm
Flex-Pay is essentially a pre-paid (pay in advance [PIA]) service that does not require "credit" at all.
There is a huge difference between "reducing credit standards" and expanding the pre-paid/PIA market.
Lowering credit standards implies allowing new post-paid customers onto the network and truly exposing the company to credit risk losses. This is what AT&T also tried to do on several ocassions - during my tenure there - in order to boost gross adds. And it always resulted in huge bad debt & obvious involuntary churn issues. (Somehow the "Smart guys" upstairs thought the results would be different each time they tried this trick. Those were the same guys that drove the company into the ditch and walked away with $ millions upon the buy-out by Cingular.)
Expanding the pre-paid/PIA market implies the ability to capture the greatest untapped market opportunities among consumers who operate off-the-grid or who have no or poor credit history - including a huge immigrant community - but need a pay-as-you-go service.
The only real financial exposure to PIA services is if there is unmanaged payment fraud (stolen credit cards or bad checks accespted as payment). but I believe TMO is using Vesta to mitigate this risk - and Vesta is best in class at this sort of risk mitigation.
There is a higher churn risk without contracts - but where else would these people go? I consider a solid well managed pre-paid PIA offer portfolio 9where payment fraud is well controlled) to be a strong competive advantage for a US carrier. And I'm a risk management guy.
Posted by Anonymous | April 16, 2009 - 12:48pm
This is true. I'm not sure how this would translate to TMO lowering their credit standards. Flex-Pay is a pre-pay program. It is designed to capture the portion of the market that otherwise would not be able to get a cell phone.
Posted by Anonymous | April 22, 2009 - 10:57am
A little bit of incorrect information tmo has two different types of flexpay. Flexpay contract & flexpay month to month (depending on what the customer qualifies for). The flexpay contract actually has eliminated deposits for customers with limited credit. The customer pays for their bill in advance every month. Churn for the flexpay annual contracts has been kept to a minimum & shown a subscriber growth/profit success for tmobile usa. Flexpay month to month however because of customers with bad credit & fraud has shown a high amount of churn. Tmobile does not discount phones for month to month contracts. So I'm not sure how much that hurts them dollar wise. Flexpay month to month is a prepay type service so does not effect post pay customer growth. Overall flexpay has been a huge success for tmobile as far as bringing in extra revenue.
Posted by Anonymous | July 13, 2009 - 6:16pm
Flexpay was introduced to cover an increasing gap in subscriber growth, and while these accounts generate revenue, they also cost many time over post paid and pre-paid to service. This is a losing strategy as evidenced by Sprint - TMO is desperate and on the downward spiral. No 3g to speak of, poor handest line up, poor service experience. 4th in wireless for a reason.
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