Analysts: T-Mobile's family plan promo could cut into ARPU, might pressure Verizon

Financial analysts are divided over how much of an impact T-Mobile US' (NYSE:TMUS) new family plan promotion will have on the carrier's subscriber growth and financials, and how the promotion will affect T-Mobile's rivals. The plan could put pressure on AT&T Mobility (NYSE: T) and Verizon Wireless (NYSE: VZ), but analysts see the impact as being minimal at this point.

T-Mobile said that from July 30 through Sept. 30, customers who sign up for its Simple Choice plan can get four smartphone lines with unlimited voice and texting and up to 10 GB of LTE data, or 2.5 GB each, for $100 per month. However, customers who sign up for those plans will only be able to take advantage of the offer until Jan. 2, 2016. After that date, customers will be reduced to 1 GB of data per line.

"We believe the promo should drive continued subscriber momentum, but will be somewhat dilutive to revenue and EBITDA," Credit Suisse analysts Joseph Mastrogiovanni and Michael Baresich wrote in a research note.

They noted that the new T-Mobile plan is $60-100 cheaper than similar plans from T-Mobile's competitors, but that AT&T could be more protected from pressure than Verizon. AT&T has been moving aggressively to migrate its customers to its Next handset upgrade program and its Mobile Share Value offerings, and away from subsidized devices.

"Given AT&T's efforts to migrate their customers to their lower-priced Mobile Share Value plans, we believe their existing customer base could be more insulated than Verizon's," the Credit Suisse analysts wrote. "AT&T's customers who recently saw a significant decline in their bills should be relatively pleased with the company for at least a short period of time. Verizon's existing customer base, however, could be frustrated with the company's willingness to allow new customers to join the network at a lower price, but not extend that pricing to existing subscribers. We think T-Mobile's early termination fee reimbursement and $60 discount could be appealing to this subset of customers. We do not expect an immediate response from either carrier, as we feel they'll take a wait and see approach given their recent price changes."

In terms of the impact on T-Mobile, the Credit Suisse analysts noted that the new promotion could reduce T-Mobile's 2015 EBITDA by around $460 million. However, they cautioned that "it can be difficult to calculate the impact" of the promotion "due to the limited information available related to T-Mobile's customer base."

Meanwhile, BMO Capital Markets analyst Kevin Manning wrote in a research note that the impact of the new plans "will be minimal at attracting new subs, although it could help reduce churn ahead of the expected iPhone launch in September."

Manning noted that "this is the first time we have seen a wireless plan with a limited time usage component. We think this will limit its success in attracting subscribers from competitors."

Further, Manning noted that while T-Mobile's plan is discounted, T-Mobile's data plans do not let users share data and do not include an early upgrade offer, as AT&T and Verizon's $160/10 GB do. "Jump, T-Mobile's upgrade option, is an additional $10 per line, or $40 total with four lines," he added.

"The promotional offer is $40 less ($10 per line) than the current most comparable T-Mobile offer, which is a four-line family plan with 3 GB of data per line for $140, which is likely to negatively affect T-Mobile ARPUs," Manning wrote.

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