Ho's Perspective: Sprint, T-Mobile will keep sparking pricing moves in 2015

William Ho is a leading industry analyst, consultant, and commentator at 556 Ventures.

William Ho

It's about that time of year where the industry and the tech forward focus on the upcoming Mobile World Congress in Barcelona, where devices will be announced, IoT categories will be expanded, 5G visions will be presented and someone will exclaim that this is NFC's breakout year. However for those who are more focused on the near term and on the grind of the daily blocking and tackling--acquiring, upselling and retaining customers--Mobile World Congress is a distraction.

2014 was a significant and ultra competitive year to the benefit of many wireless customers. Whether subscribers were switching carriers, staying put and enjoying extra data allotments or getting a free Wi-Fi router, for the most part, savings and value abounded. At the end of last year, I observed that there were more than 80 postpaid pricing actions and promotions from the Tier 1 carriers, more than double that of 2013.  The prepaid side saw more than 70.  Given this, many are anxious to see if 2014's volatility will repeat or whether it will "calm down" to the 2013 levels. 

Now that carriers' fourth-quarter earnings releases are largely complete, we have a window into which carriers are carrying momentum into 2015. The net addition metric is just one, but an important indicator of competition. Though overall revenue and subscriber profitability factor into acquisition and retention decisions, in the end, net additions are a raw indicator of carrier growth.    

The postpaid chart reveals that Verizon had the most momentum coming out of the last quarter. Overall, they were the postpaid growth leader for the year with nearly 5.5 million net additions. T-Mobile rode high all year culminating with almost 4.9 million. AT&T's steady pace throughout the year yielded 3.3 million more additions.  While Sprint continued to struggle at the beginning of the year, its refreshed and reinvented offers in the second half of the year tried to push net adds into positive territory, but the carrier ended the year with about 600,000 postpaid subscriber losses.  

Source: Carrier Reports

February isn't even over yet but price and promotion movement has already begun. Below are some significant competitive plan changes or promotions designed to improve market position:

January

  • (7) AT&T incorporates rollover in its Mobile Share Value plans

February

These moves illustrate that Verizon and AT&T aren't going to sit on the sidelines to let Sprint and T-Mobile pick off segments of their subscriber base. Both Verizon and AT&T are focused on cutting the access charge per line for lower data levels in order to transition feature phone and perhaps 3G smartphone family users, but at the same time keep within striking distance of T-Mobile and Sprint pricing. While T-Mobile is so far absent from pricing moves in the first quarter, they came off the mid-December introduction of "Data Stash," which prompted AT&T to offer its own data rollover feature. Carriers are responding to competitors' offers more rapidly than ever before. Industry veterans will remember that in years past responses took weeks or months. Competitive responses with a week or two may be shaping up to be the new normal.

Compared to the postpaid side, the prepaid sector growth numbers are but a sliver.  Total sector net additions with the big five prepaid players only accounted for less than 15 percent of postpaid net additions at less than 1.9 million. Based on fourth-quarter trends, Sprint's prepaid brands had the most momentum while T-Mobile's flagship brand, MetroPCS delivered throughout the year. While prepaid only makes up less than 6 percent of its retail base, Verizon remained positive throughout the year. With more than 26 million prepaid subscribers, TracFone Wireless and its many brands seem to struggling relative to competitors. Lastly, though AT&T reported Cricket was doing well in its integration and subscriber expansion efforts, it needs to quickly help bring AT&T's overall prepaid category into positive territory in 2015.

Source: Carrier Reports

Given fourth-quarter results, the prepaid sector isn't standing still as there has been much more plan and promotion activity than postpaid. There were many moves/promotions but some important ones include:

January

February

Some key themes here are that data allotment increases continue to be a crucial lever in competitors' arsenals, (not illustrated but) $100 switching credits continue to be sweeteners and unlimited calling to Mexico will be an important draw to a segment of the Hispanic demographic.    

The big picture

To some, the above moves are just minutiae but what are some of the macro views we should be expecting? Here's what I've gleaned from my observations over time:

  • "Limited time" promotions that encompass increase data allotments work. Aside from quick competitive responses, giving more data at the same price point seems to be the new normal. The shift to just wooing new customers with these increased data offers is also permeating into existing customer bases.  There appears to be a trend to automatically implement the increased data without customer initiation.  This approach is founded on the philosophy that it's less expensive to retain a customer than try to reacquire them.
  •  T-Mobile and Sprint's Early Termination Fee switching credits aren't going away. For T-Mobile's it's Un-carrier 4.0 and for Sprint, it's an essential component to subscriber growth and dig out of negative territory. However, AT&T and Verizon have played around with lesser (e.g., $100-$150) values.     

But what are the company specifics?  Companies' public comments in earnings calls and investor conferences are wonderful windows into what they're telegraphing as investors worry about the pace of competition affecting items such as revenues, costs and profitability. The two main disruptors will be Sprint and T-Mobile, as they are specifically targeting AT&T and Verizon's postpaid bases.

  • T-Mobile certainly has momentum and relished pushing competitors to plowed "all kinds of irrational money" into the fourth quarter, in the words of T-Mobile COO Mike Sievert. If read correctly, T-Mobile will follow the 2014 playbook as they "front load" their acquisition efforts in the first half/three quarters of year. Executives have also talked up the stickiness of family plan customers. It's no wonder since their offer of four lines for $100 (with whatever data allotment promotion) is a huge draw. Data Stash needs to be messaged and marketed while an undetermined number of Un-carrier announcements are expected to be forthcoming throughout the year. 
  • Sprint's Cut Your Bill in Half "event" that was supposed to end in January has been extended for all of 2015.  The company admits that while those targeted users aren't necessarily halving their bills, they are looking and adopting other Sprint plan options. So the "event" is more about increasing retail store traffic, which leads to the significance of the recent RadioShack store partnership. If Sprint has been successful in gross additions, the expanded distribution from 1,750 stores will only help the cause, albeit toward the back half of the year. Similar to competitors' efforts, Sprint also concentrates on multi-line customer acquisition as a sure way to grab as many gross additions as possible.

For their part, Verizon and AT&T are conservative and usually do not instigate major moves unless it is against one another.  However, with T-Mobile and Sprint eating into their bases, they will have to adjust here or there defensively or proactively if losses are greater (e.g., previous quarter) than anticipated.  Both companies' CFOs on their earnings call pointed to focusing on the higher-end enterprise base. Whether it's protecting or upselling services, this segment tends to be less price sensitive and delivers higher ARPU/ARPA than the consumer sector.  Also, both companies' executives have gushed over the growth opportunity in tablets. To be sure, tablets additions of 1 million or greater fueled Verizon's net addition success for three quarters last year. 

2015 just started and the wireless industry is competing at such a quick pace. There may be shifts throughout the year and of course volatility is expected when the next iPhone version is introduced. For 2015 carrier competition remains healthy. 

William Ho is a leading industry analyst, consultant, and commentator at 556 Ventures. He has over 25 years experience in the fixed, internet and wireless sectors. Follow him on Twitter @billho888.

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