T-Mobile expects prepaid growth to slow in Q2 as it avoids promotional 'stupid stuff'

Growth of T-Mobile's MetroPCS brand is likely to slow during an ultra-competitive quarter in prepaid, the carrier said

T-Mobile’s growth among prepaid users is likely to slow during the second quarter as competition continues to ramp up in that segment. But the carrier isn’t about to retreat from prepaid in the long term, executives said this week.

T-Mobile’s MetroPCS brand and AT&T’s Cricket have made huge gains in a prepaid market that has become cutthroat as the ARPU gap with postpaid has narrowed over the last few years. The space has grown increasingly heated in recent months—Sprint’s Boost Mobile late last year relaunched a campaign offering free phones to users who switch from other carriers, for instance—but T-Mobile said its prepaid business can withstand the promotional feeding frenzy without being involved in it.

“Metro is an incredibly efficient and effective production that we have in the marketplace and you’ve seen the results,” T-Mobile CFO Braxton Carter said at an investors conference Thursday. “We’ve chosen not to do, or not to follow, irrational-type promotions in the prepaid part of the market, and as a result we’ll see a sequential decline in our prepaid growth (in the second quarter). Part of that is seasonality; part of that is our deliberate decision not to respond.”

Sprint earlier this month unveiled “Project Switch,” a campaign designed to illustrate the ease with which customers can move to the Boost prepaid brand from other service providers. Boost also launched a new plan that includes four lines of so-called “unlimited data” for $100 a month—the first line is $100 a month and up to three additional lines are free—although the provider “deprioritizes” data when the network is congested, and other restrictions apply.

Sprint has struggled to compete in prepaid over the last two years, but it appears to be regaining its footing in a market that has become increasingly competitive. It added 180,000 prepaid net users during the first quarter of 2017 after losing 501,000 prepaid customers in the final quarter of last year. And it hopes it will jump-start its prepaid efforts with a relaunch of its Virgin Mobile brand slated for mid- to late summer.

T-Mobile continued to gain momentum in prepaid during the first quarter of 2017, posting 541,000 net additions due primarily to the MetroPCS brand. Branded prepaid churn was 3.94% for the quarter, down 26 basis points year over year, and prepaid churn for the year was 3.88%, a company record. And T-Mobile in March began offering unlimited data to MetroPCS users as the industrywide unlimited craze expanded beyond postpaid subscribers.

That success is prompting some service providers to respond with campaigns that may not be financially beneficial in the long term, T-Mobile COO Mike Sievert suggested.

“This MetroPCS business of ours is a juggernaut, and everybody’s scared ****less of it. And once in a while, they do irrational things because they’ve got a quarter closing in on them and their quarter’s going to be a disaster if they don’t,” Sievert said during the conference. “It freaks our competitors out once in a while, like you’re seeing this quarter, when they do stupid stuff. And we’ve got a business that works so well we don’t need to follow them when they do stupid stuff.”