LAS VEGAS--The 2014 Consumer Electronic Show took an interesting turn this year. Typically CES is a glitzy, gadget-centric convention. And in some ways it still is: wearables and connected automobiles garnered significant attention. But this year the convention also became a venue for wireless operators to fuel their competitive juices and launch some new rate plans. Yep, that's right--rate plans.
In case you haven't noticed, the U.S. wireless operators are at war with each other. T-Mobile US (NYSE:TMUS) set the stage for this battle a year ago when it unveiled its "Uncarrier" strategy and promised to revamp the way wireless operators traditionally do business.
If disruption was T-Mobile's goal, and it appears it was, then the company has succeeded. First T-Mobile riled up its competitors with its Simple Choice no contract plans, then it announced Jump, a program that allows customers to upgrade their wireless devices up to two times per year after an initial six-month enrollment period. Then last October it put an end to international data plans and it gave tablet customers 200 MB of free data for life as long as they keep their tablet on the company's network.
But the final straw that appears to be setting the industry in a full-tilt spin is yesterday's announcement by T-Mobile that it will pay up to $650 in early termination fees (ETFs) for customers that want to switch to T-Mobile from AT&T Mobility (NYSE:T), Sprint (NYSE:S) or Verizon Wireless (NYSE:VZ).
T-Mobile isn't really the first carrier to target ETFs; AT&T announced last week that it was going to offer up to $450 in credit to customers who switch from T-Mobile to AT&T and trade in their smartphones. However, AT&T executives have said this is only a temporary offer while T-Mobile insists its offer is permanent and intended to go after the lucrative family plan customers of AT&T and Verizon. Moreover, numerous carriers have routinely offered to pay EFTs during the past several years as competition has increased--but those offerings have been promotional and not permanent.
Sprint also used CES as a forum to announce its new "Framily Plan," a new calling circle offering launching tomorrow that promises greater savings for everyone in the group as more people join. In addition, Sprint announced "Easy Pay," an equipment installment plan.
In a research note, Jefferies analysts pointed out that Sprint's new plans largely mimic T-Mobile's existing Simple Choice and EIP plans, and are most likely a knee-jerk response to the fact that T-Mobile is taking customers away from Sprint at a rapid rate. At T-Mobile's media event at CES yesterday, T-Mobile CEO John Legere quoted porting ratio stats that seem to indicate that all carriers are taking a hit from T-Mobile. He said that Sprint's porting ratio, or the number of customers who are switching from Sprint to T-Mobile, has been above 2.0 percent ever since T-Mobile announced its new strategy in early 2013. He also said that AT&T's porting ratio is above 2.0 percent and hinted that Verizon's porting ratio may be climbing. He said it was 1.7 percent for the first seven days of 2014.
But Verizon appears to be the only U.S. operator staying on the sidelines of this price war. Sure the company did respond to T-Mobile's Jump with the launch of Edge, a handset upgrade program that lets customers upgrade to a new device every six months if 50 percent of the retail cost of the phone has been paid. Analysts, however, panned Verizon's program because Verizon doesn't take the cost of a device subsidy out of its rate plans. Thus, customers who sign up for Edge effectively pay the cost of the device twice--upfront and in the handset subsidy in the rate plan.
Will Verizon take T-Mobile's bait and start eliminating ETFs? Or International roaming fees? Or revise its rate plans? The operator, which has long touted its LTE coverage and capacity, has recently admitted to experiencing network issues due to higher-than-expected LTE data traffic. The company is in the midst of deploying LTE in its AWS spectrum to help alleviate that stress, but it will take time because Verizon needs to launch more handsets capable of operating on its AWS spectrum first.
For now, it's unlikely that Verizon will enter the price battle. However, if T-Mobile's latest ETF elimination strategy starts to make inroads with Verizon's customers, the operator will surely have to respond. The wireless pricing wars are escalating, but I have a feeling we are in for a long and treacherous battle ahead. --Sue