Can T-Mobile’s New Phone Plan Gain Subscribers?

With Americans practicing social distancing, they have become more dependent than ever on telephone and Internet connections. All major wireless carriers have suspended data caps for those who don’t already have unlimited access. They are also opening up mobile hotspot capabilities for those without access and expanding data allowances to ensure better home connectivity as more people work from home.

All these movements should lead to greater retention of subscribers in the coming months.

Corn T Mobile (NASDAQ: TMUS) makes a move that he hopes will appeal to consumers who may have been squeezed out of their jobs and need to find ways to cut spending. The wireless operator will begin offering its prepaid T-Mobile Connect plan at $ 15 per month on March 25. The company had originally planned to start offering the package at a low price after it merged with Sprint (NYSE: S) closed, but it moved early in response to COVID-19. Will it help him steal subscribers from his rivals AT&T (NYSE: T) and Verizon (NYSE: VZ)?

From left to right: Mike Sievert, COO of T-Mobile, CEO John Legere and CFO Braxton Carter. Image source: T-Mobile.

5G for $ 15 per month

The T-Mobile Connect plan is as easy as it gets these days. Customers get unlimited calls and texts and 2 GB of data allowance. Customers with a 5G capable handset will be able to access T-Mobile’s 5G network where available.

But unlike T-Mobile’s other plans, customers are completely cut off when they exceed the 2GB data cap. T-Mobile is simply slowing speeds for customers on its existing plans with data caps. And if subscribers also use their T-Mobile Connect plan to connect to other devices, they will hit that 2 GB limit very quickly.

In other words, T-Mobile Connect is a plan for those who only need the bare minimum to stay in touch with friends and family. And it could be a great plan for those struggling financially as the response to the novel coronavirus has resulted in millions of job losses and others have seen their hours cut.

But these consumers might be better off cutting their typical home Internet service and relying exclusively on their wireless connections. With the generous data allocation policies of all of the carriers mentioned above, consumers who are trying to stay connected while saving money may find a more viable option in the short term.

An inviting churn rate

Still, T-Mobile’s strategy is sound. Management wants to do everything in its power to increase the change of subscriber at a time when there is little incentive to do so.

The fourth quarter saw a slight increase in subscriber switching, which actually led to higher churn rates at T-Mobile. Management hinted that it would have been better if the subscriber churn rate was even higherbecause it expects to be a net winner in terms of market share when consumers decide which operator to go to next.

To that end, the introduction of a new low-cost plan will invite consumers to – at the very least – take a look at what T-Mobile has to offer, which could lead to more switching.

The challenge, however, is that with the higher number of changes in Q4, many consumers have switched to new device payment plans that could last up to three years. While they can redeem the contract on these devices, customers could lose the promotional credits they signed up for. Plus, paying a lump sum now would defeat the goal of finding a cheaper plan for many.

The early introduction of T-Mobile Connect will only serve to help T-Mobile. While the low cost plan is expected to have strong appeal to consumers at a time when many are looking to reduce monthly expenses, the unique characteristics of social distancing efforts and the increased reliance on connectivity make them a tough sell. Even then, consumers looking for exactly what the T-Mobile Connect plan has to offer may be stuck in the device’s payment plans for months or years to come. As such, the churn rate in the wireless industry may remain low for some time, weighing on T-Mobile’s overall subscriber growth.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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