Editor's Corner—T-Mobile's Netflix offer highlights confidence in its network

A poll conducted among a HITEC audience showed that 70 percent of those in attendance were in favor of texting guests, while 25 percent were undecided and 5 were against it.
T-Mobile is targeting millennials with free Netflix subscriptions.
Colin Gibbs Editor's Corner

T-Mobile’s latest “Uncarrier” campaign shows the carrier isn’t worried about the capacity of its network—at least for now.

The nation’s No. 3 wireless network operator said it will offer free Netflix subscriptions to customers with two or more lines on T-Mobile One, the unlimited data plan it rolled out a year ago. The subscription, which typically sells for $10 a month, enables users to stream HD video at 480p on two devices. And T-Mobile will cover the cost for users who already have a Netflix subscription.

The operator didn’t say how much it was paying Netflix for the offering, but did say that the deal is exclusive and long-term, barring other operators from bringing a similar offer to market.

“The inclusion of the streaming service should help drive customer retention and acquisition at a reasonably affordable subsidy ($120/year),” Mike McCormack of Jefferies Equity Research Americas wrote in a note to investors. “While T-Mobile will likely pay close to retail cost to Netflix, we believe 1H trends supported flexibility to absorb such expense within existing guidance, which management reaffirmed.”

A savvy move as mobile video consumption ramps up

T-Mobile is directly targeting millennials with its new offer, which is being positioned as a counter to AT&T’s DirecTV Now and Verizon’s Go90. Such services are aimed at meeting demand for mobile video that is predicted to grow nearly 900% by 2021, according a forecast Cisco released earlier this year.

And as T-Mobile CEO John Legere went out of his way to note, T-Mobile didn’t have to make a blockbuster acquisition or launch a new business to offer the deal.

“You see, the carriers have blown billions buying up media businesses trying to create carrier content/cable mashups,” Legere said in a video blog post. “Why? Well, there are a couple of reasons. First, my favorite, they’ve been getting crushed in wireless for years by yours truly. Second, they want to control everything you watch and read, all so they can sell it to you in bigger, fatter, pricier bundles.”

Betting on its network in the age of unlimited data

The move is a clear indication that T-Mobile believes its network can continue to perform even as its launch of unlimited data spurs increased usage. Legere once again noted recent data from Ookla that indicates the data speeds of both Verizon and AT&T has slowed since the two carriers joined T-Mobile and Sprint in the unlimited arena.

“The largest impact (of the Netflix offering) is likely to be the potential reduction in churn, as well as the potential to gain share with family plans,” Amir Rozwadowski of Barclays wrote in a note to investors. “Furthermore, the new promotion may accelerate the uptake of T-Mobile One plans. The company remains confident in the ability of its network to handle any increased traffic that may result.”

Indeed, Verizon last month overhauled its unlimited data plan in what was widely viewed as an indication that its network was struggling under the strain of a significant increase in traffic stemming from the launch of an unlimited plan. It divided its plan—which was introduced just six months ago—into three tiers, capping video transmission speeds to lighten the network load.

And Legere’s claims were buffered this morning by fresh data from Ookla, which determined T-Mobile operated the fastest mobile network in the United States “on modern devices” during the first two quarters of 2017.  

Offering free Netflix content won’t come cheap for T-Mobile, of course, but it’s far more affordable than spending vast sums to actually acquire a content company. And if its network is up to the task, it could help the nation’s third-largest carrier woo new customers and reduce churn just as carriers prepare to do battle in what’s shaping up to be an unusually competitive holiday shopping season.