T-Mobile isn’t raising prices but upselling to Magenta Max

T-Mobile makes a big show that it isn’t raising prices, as rivals AT&T and Verizon have signaled in recent days and weeks. So what’s it doing to keep up with inflation?

One strategy to grow ARPU (average revenue per unit) is to move customers to higher priced rate plans. It’s not exactly a new phenomenon – Verizon has been doing this for years, emphasizing its strategy of moving customers to higher-end plans.

Conversely, T-Mobile has been the “value” leader in wireless, which is another way of saying it’s offered some of the lowest prices compared to its peers. For a long time, T-Mobile’s customers chose lower prices over better coverage or an overall better network experience.

Company leaders freely admit their network wasn’t the best, but they’re changing that with 5G, now emerging as the network leader.

During the MoffettNathanson 9th Annual Media & Communications Summit on Thursday, analyst Craig Moffett asked T-Mobile CFO Peter Osvaldik and Chief Marketing Officer Mike Katz about rivals’ price increases. Now that T-Mobile offers a much better network, it would seem like there’s an opportunity to raise prices and narrow that price gap, he suggested.

Osvaldik said it’s not the “un-carrier” way to “just go out and increase prices. We found a better way to actually increase ARPU and service revenue and that is to have customers select us.”

Without increasing prices, T-Mobile is seeing customers “self-select” to higher tier rate plans, and that’s driving “this great organic growth in ARPU,” as well as ARPA (average revenue per account). “We’re now expecting for the first time in a long, long time ARPU to be up 1% year-over-year and ARPA to be up about 2% year-over-year,” Osvaldik said.

It’s worth noting that others have questioned whether T-Mobile can raise prices given the promises it made in order to get the 2020 Sprint deal approved by regulators.

15% on Magenta Max

In a period of hyperinflation, competitors have said they’re going to pass it along to consumers, “whereas for us it’s, no. Because we have the value proposition and the best network, we're able to track those consumers … and those consumers are selecting our highest tier rate plan which is driving ARPU up,” Osvaldik said. “So that's how we're thinking about it.”

Katz said that back in 2015, T-Mobile launched a program called Price Lock, “which promises our customers that we're not going to do what AT&T and Verizon just did to them, which is raise their price and not give them any additional benefit. And that doesn't mean that there's not opportunities for us to deepen relationships with customers.”

Once again, the strategy goes back to Magenta Max, and to “give customers benefits that they are willing to pay more for,” Katz said. “What we're seeing with Magenta MAX is the majority of our loading mix is coming on to Magenta Max, and we still have a lot more room to run, because less than 15% of our base is on it. So we expect to still see ARPU growth, but do it through creating value with customers and giving them an exchange of value that they’re willing to pay more for.”