By Lisa Johnston
New products on display at the American International Toy Fair, held in N
NEW YORK — T-Mobile calls its new rate plan Simple Choice, but getting the message across to consumers will be anything but simple, some analysts said.
And analysts contacted by TWICE said the pricing strategy itself faces challenges.
Bringing in a T-Mobile-optimized iPhone 5 and finally launching 4G LTE, however, will nonetheless make T-Mobile more competitive with its major national rivals, analysts said.
Whether Simple Choice will make T-Mobile more competitive remains is up for debate.
With Simple Choice, T-Mobile dropped a multitude of rate plans available in its stores for a single base plan that offers unlimited talk and text and 500MB of 4G data at $50/month for a single line, with unlimited data at 2G speeds when the 500MB cap is exceeded. An additional 2GB of 4G data can be purchased for another $10, and for $20, users can get unlimited 4G data.
The plans are available only without contract and require users to pay the full unsubsidized price of a handset, either paying the full price up front or making a down payment and paying off the rest in 24 monthly installments. Users could also pair the no-contract plan with the purchase of a SIM card for use with a phone they might already own.
If a customer decides to drop service before paying off a handset, the carrier plans a trade-in program to help offset the customer’s handset costs.
Major elements of Simple Choice are available in the indirect channel under the Value Plan name, excluding the installment-plan option that T-Mobile hasn’t yet made available to indirect retailers.
Over a 24-month period, T-Mobile contended, consumers’ out-of-pocket costs are lower than competing carriers’ plans, which build the cost of subsidized handsets into their rate plans, T-Mobile president/CEO John Legere said during a press conference. The plan will also appeal to consumers irritated by being locked into two-year contracts and getting hit with overage charges when they exceed their monthly usage limits, he said.
The pricing strategy, various analysts said, will attract cost-conscious customers from rival carriers who hold onto their phones for long periods of time or bring their own phone to the T-Mobile network. These are people who don’t frequently trade in their phones to keep up with the latest technology or who don’t use a lot of data, they added.
The new strategy, however, “will backfire on T-Mobile as rival carriers will likely promote the lower upfront costs of their devices to attract customers,” contended Eric Costa, an analyst at Technology Business Research (TBR).
Although T-Mobile might still hold a slight price advantage over the next-cheapest major carrier, Sprint, “I still believe that customer perception of paying more for a device will limit T-Mobile’s net additions,” Costa said. “My guess is a subscriber would choose the slightly higher Sprint plan over paying about $500 for an iPhone but then paying a little less per month.”
The strategy “provides T-Mobile with a differentiator that it can leverage to distinguish itself from rival carriers,” but “competitors will accentuate the higher prices of T-Mobile’s devices to lure subscribers to their networks,” Costa continued.
“The unsubsidized pricing model will reduce [operating expenditures] and attract customers seeking lower-priced service plans,” but T-Mobile “will likely lose more postpaid customers accustomed to subsidized handsets,” he concluded. For his part, Yankee Group senior analyst Rich Karpinski said T-Mobile’s plan “is certainly cheaper than the postpaid guys in most cases, but they are not a ton cheaper, and they are not cheaper in many cases than other prepaid/MVNO options.” Although price is one element of T-Mobile’s story, he added, “the other elements — such as flexibility, easier upgrade, strong network story (especially long-term) — are just as important, but [they] make crafting an easy-to-understand marketing message difficult.”
Karpinski also contended T-Mobile’s price strategy could use some tweaking to be more successful. “Device financing keeps the customer’s out-the-door cost low, but I’d argue that it would be more compelling if there was a zero-dollar out-the-door option on all phones,” he said. “For instance, I think T-Mobile is charging $69 out the door for the Samsung Galaxy S3, plus $20 per month. I found a similar out-the-door price on Amazon for the same phone for $79.”
Karpinkski added, “When you add the monthly financing fees to the monthly cost, and see a similar out-the- door cost, some of the pure pricing advantage begins to go away.”
T-Mobile’s service-price advantage is not that big in some cases, he noted. “In almost every case, customers can get a slightly better to much better monthly service rate with T-Mobile vs. AT&T and Verizon shared data pricing.” However, he added, T-Mobile’s new deals “aren’t quite as big a bargain for multiple devices or families or for customers that don’t use or like paying for unlimited voice minutes.”
In addition, Karpinski said, “customers must factor in their device situation — paying full-price or financing a very high-end phone will add $20 or so to their monthly fee, bringing out-of-pocket costs closer to on par with traditional plans in some cases. And with T-Mobile’s LTE network just starting to go live, customers must make yet another complex decision on network and device availability and timing.”
The upshot is that consumers face a “relatively complex decision environment, especially for the next few months — or when it really counts, which makes T-Mobile’s launch of this new device/service approach even that much greater of a marketing challenge.”
For savvy consumers who are “especially cost-conscious and willing to crunch total-cost-of-ownership numbers, there are cheaper deals out there than TMobile’s value plans — further complicating its ‘uncarrier’ marketing story,” Karpinski said.
Compared with premium-priced, postpaid competitors, “T-Mobile’s value rates are almost always a better deal, though add in the cost of financing high-end phones — especially in a multi-device or family scenario — and the savings are less stark,” Karpinski said.
For his part, Mike Roberts, principal analyst at Informa Telecoms & Media, called T-Mobile’s new uncarrier strategy “the right move at the right time.”
The strategy is “a bold and long-overdue attempt to revive its fortunes by clearly differentiating itself from other major U.S. mobile operators on the four key fronts of prices, services, devices and network.”
“As the smallest of the U.S. big-four mobile operators, T-Mobile is finally making the type of bold moves necessary to shore up its competitive position and end the slow bleed of subscribers leaving for rival operators, which has weighed on its results for years.”
Although the launch of LTE and the iPhone 5 represent “a case of catching up with the competition, T-Mobile’s new Simple Choice Plan and aggressive prices will appeal to consumers and business alike and should put the operator on the road to recovery.”
However, he noted, “such aggressive moves could also pressure margins and spark a price war, but those are the types of risks T-Mobile has to take to change the competitive landscape in the U.S.”
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.