Before announcing layoffs last week, T-Mobile unveiled a new postpaid rate plan and prepaid “Nada Yada Yada” campaign aimed at increasing average revenue per user (ARPU) and dissing cable.
Neither of these moves signal a big departure in T-Mobile’s strategy, but they are steps in the “un-carrier’s” battle with long-time rivals Verizon and AT&T and newer, more aggressive competition from cable companies.
The first step in T-Mobile’s new Go5G Next is for people to switch to the new postpaid plan. That in itself is notable because carriers want customers to sign onto their newer, pricier plans, including T-Mobile, which for years boasted lower prices than its big rivals. In this case, the incentive for the customer is upgrading to a new device every year so long as half of their current phone is paid off.
The “un-carrier” said it’s aiming to please the almost 10% of people surveyed for whom upgrading to the latest smartphone every 12 months is a major priority.
Analysts said it’s a good deal if you’re one of those people. In addition, customers with new phones typically are happier than those with older phones and less likely to churn, said Recon Analytics founder Roger Entner.
T-Mobile’s Go5G Next price for a single line is $100, which compares to the premium single-line plans offered by AT&T for $85 and Verizon for $80. (CNET reported today that Verizon is launching a $90 single line “Ultimate Unlimited” plan on Thursday, August 31.)
A lot of people zeroed in on T-Mobile’s $100 price point because it is so high and T-Mobile has spent a lot of time establishing itself as the “value leader” with lower prices.
However, most people these days are on family plans. “The single line users for postpaid is kind of the outlier,” said wireless analyst Bill Ho. Indeed, a recent TD Cowen survey found that about 70% of cell phone users are on family plans and 26.7% of respondents are on individual plans.
Grabbing the switchers
Part of T-Mobile’s marketing incentive is to move people off of its older plans to the new plans and get rid of the old plans from the system, Ho said.
“Every upgrade typically helps the ARPU or the ARPA story,” especially when people were on plans that are three or four years old, he said. “If you constantly upgrade them, you’re going to reduce churn, increase ARPA” and in theory, increase profitability. “You pay that marketing up front” to keep the customer longer.
Investment analysts at LightShed Partners had a similar take, saying the Go5G Next isn’t a major move by T-Mobile but underscores a pivot to ARPU growth already underway at T-Mobile.
“This ‘new rate plan’ could have been executed with a $10/month add-on feature to the existing Go5G Plus plan,” wrote analysts Walter Piecyk and Joe Galone. “But features aren’t as sticky as new rate plans and more importantly they don’t enable the classic 2-step move implemented by countless legacy carriers to increase ARPU … Driving higher ARPU is the logical next step for T-Mobile.”
Focus on ARPU, ARPA
T-Mobile CFO Peter Osvaldik said during the Q2 earnings call last month that they expect ARPU will be generally stable on a year-to-year basis, but "there's probably some potential for sequential increase again from Q2 to Q3."
The popularity of Go5G Plus raises the prospects for higher ARPU, but T-Mobile’s segmented approach to attracting more military and 55+ customers and larger government and enterprise accounts – which get discounts on volume purchasing – tends to make ARPU lower.
T-Mobile’s postpaid phone ARPU improved to $48.86 in Q2 2023, which was about 20 cents better than the previous quarter. AT&T’s postpaid phone ARPU in Q2 was $55.63. Verizon doesn’t report ARPU but said wireless postpaid average revenue per account (ARPA) was $131.83 in Q2 2023.
Executives at wireless carriers readily acknowledge that once their lower priced plans get people into stores, they’re often lured to higher priced plans. Enter said that in general, the higher priced plans are “by far” the better deal because they include so many extras.
“You only pick the lower price plans if you really don’t have the money. But if you look at it from a value perspective, the higher priced plans are full of value, with all the things that they add to it,” he said, such as Apple TV+ and Netflix in the case of T-Mobile’s Go5G Next.
Interestingly, T-Mobile made a big deal out of the fact that existing customers “will always get the same great device deals as new customers,” which happens to be a thing that AT&T kicked off a few years ago.
“It’s really funny that they point to the legalese. AT&T has been offering this before anybody else and now T-Mobile points to the legal fine print,” saying “for us, it’s in the contract,” suggesting that with AT&T, it’s something that could be taken away, Entner said.
In an August 24 note for investors, New Street Research (NSR) analyst Jonathan Chaplin said clients are concerned the recent layoffs at T-Mobile indicates some changes in competitive dynamics and margins for the industry. “We don’t think it does,” he said. “The company confirmed that there is no change to guidance, which suggests that the changes were anticipated.”