T-Mobile CFO: $10 price increase on unlimited plans needed to recoup investment
T-Mobile US' (NYSE:TMUS) decision to raise pricing by $10 per month on its unlimited smartphone data plans was needed to monetize increasing data traffic and get back a return on improving its network, according to T-Mobile CFO Braxton Carter.
T-Mobile on Friday increased the cost of its unlimited data service for its "Simple Choice" no-contract customers, to $80 per month from $70 before, though the new unlimited plan now comes with 5 GB of tethering, double the previous amount. T-Mobile also said Simple Choice customers will now be able to get unlimited voice, texting and 1 GB of LTE data before throttling for $50 per month, up from a previous allotment of 500 MB. Customers can now get 3 GB of LTE data, including tethering, for an additional $10 per month per line (up from 2.5 GB previously), or 5 GB for an extra $20 per month per line.
Speaking Monday at the Deutsche Bank Media, Internet & Telecom Conference, Carter said that the carrier has consistently talked about how it's very focused on growth, "but being focused just on consumer growth without resulting increases in cash flows and profitability would not be the right approach, that you have to have a holistic view. We've also talked about the significance of data monetization, or being paid for what we're providing in the marketplace."
He said that the average T-Mobile customer uses 1 to 2 GB of data per month but that those on unlimited plans use an average of 5 GB.
Overall, he said, the pricing moves "were very balanced, very consumer-friendly, yet give us an opportunity to realize a more appropriate value for the differentiated, unlimited offering that's in the marketplace." Carter noted that the $70 and $80 plans now include 5 GB of data for tethering.
Carter also noted a phenomenon in which, despite recent competition on pricing, total average wireless bills have actually been going up in the past few years. He said that because the wireless industry requires a significant amount of capital investment, it's an environment that is "completely non-conducive to any significant repricing in the marketplace" and that "a lot of the moves you've seen have actually been very rational." However, some costs have been shifted from rate plans to costs customers pay for monthly device financing, he said. From 2012 to 2013, the actual amount of cash T-Mobile has received from customers increased 1.4 percent, Carter said.
There has been persistent speculation that Sprint (NYSE:S) will look to combine with T-Mobile. While Carter declined to comment on the speculation directly, he said that consolidation is inevitable to counter a "duopoly that's fairly predatory," referring to AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ). "Our view has always been, it's not a question of if, it is a question of when," Carter said of consolidation.
In terms of T-Mobile's network, CTO Neville Ray, who was also at the conference, said that T-Mobile will soon start deploying LTE on its 1900 MHz PCS spectrum, as well as move toward initial deployments on the 700 MHz A Block spectrum it is buying from Verizon. Ray reiterated that T-Mobile's LTE network on its AWS spectrum, which now covers 210 million POPs, will grow to 230 million covered POPs by mid-year and 250 million POPs by year-end.
Ray said that T-Mobile is figuring out the zoning and permitting process for the 700 MHz spectrum and is working to secure network equipment and devices that can be commercially launched to take advantage of the spectrum this year. However, 2015 will be the major year for A Block deployment.
In terms of acquiring more A Block spectrum (the licenses T-Mobile is buying cover 158 million POPs and 70 percent of its customer base) Ray said that T-Mobile is interested in the "the right deal at the right time." Ray also said that T-Mobile will look to roaming opportunities with smaller wireless carriers, largely thanks to the 700 MHz interoperability deal struck between AT&T and smaller carriers that hold A Block spectrum. U.S. Cellular (NYSE:USM) and C Spire Wireless are two of the larger A Block licensees.
Ray also said that establishing a "beachhead" with the A Block gives T-Mobile options ahead of the incentive auctions of 600 MHz broadcast TV spectrum planned for next year. T-Mobile has been aggressively pushing the FCC to craft auction rules that ensure that Verizon and AT&T do not get to win the lion's share of the spectrum in the auctions--which the larger carriers have fiercely resisted.
"The government can't have their cake and it, too," Carter said. "If they think there really needs to be four players in this market on a nationwide basis they're going to have to put some structural protections in to ensure an adequate distribution of spectrum."
Despite price war, U.S. wireless bills are going up
AT&T cuts Mobile Share Value prices, T-Mobile adds data to Simple Choice plans
T-Mobile's Ray knocks RootMetrics report, lays out LTE vision
RootMetrics: Verizon tops overall network performance tests, T-Mobile comes in last
T-Mobile notches 1.6M new subs in Q4, will shutter 3 MetroPCS CDMA markets this year
T-Mobile buys Verizon's 700 MHz A Block spectrum for $2.4B