T-Mobile might pay you to switch carriers. Here’s what happened when Europe tried it.

December 30, 2013

Switching wireless carriers can be a pretty arduous process. If your contract isn't up for a while, you need to decide if it's worth incurring a hefty early termination fee (ETF) in exchange for your freedom. For individuals, that might be a relatively simple decision. But when you're managing an entire family's accounts — which often rotate on different schedules depending on when you last upgraded your son's, daughter's or spouse's device — it's often far easier to stay the course.

Now, T-Mobile may be getting ready to knock down some of those barriers. Earlier this month, reports surfaced that the company is planning its fourth "Uncarrier" event for the Consumer Electronics Show in January. And what's being unveiled there could be an offer to pay off people's early termination fees when they come from another carrier.

This is only a rumor. But if it's true, it would make switching services a much easier process. According to Tmo News's unnamed sources, T-Mobile's project "Houdini" would give new subscribers — particularly families — up to $350 of credit to cover the costs of ending their relationship with their old provider.

Analysts say this would be a big deal for an industry that has little natural growth left in its market — everyone's down to snatching each other's customers however they can.

"AT&T in particular will face higher churn (a plan to buy out ETFs would be most appealing to families with compatible devices, which in T-Mobile's case means GSM-network based AT&T), but all carriers would suffer in response, and would potentially need to respond, triggering lower ARPU (average monthly revenue per user) and lower margins for everyone," said Moffett Nathanson's Craig Moffett.

Driving down revenues for all the carriers sounds pretty risky. But if T-Mobile thinks it can make up for it by accumulating new subscribers at a faster clip — and by making money off those people's traded-in devices, as Tmo News reasons — then it might make sense. Despite the long-term possibility of less income per user, the company stands to win a great deal in the short term at the big carriers' expense. That's not insignificant at a time when T-Mobile is facing its second possible sale in as many years.

It doesn't change the fact that paying early termination fees might still be a money-loser. European carriers actually tried the idea once before — about 15 years ago, according to Roslyn Layton, an American telecom scholar at Aalborg University in Denmark.

Instead of giving new customers a lump sum, as T-Mobile is reportedly considering, Europe's carriers enticed subscribers with a per-call rebate. The more you used a company's service, the more money you made back (at a rate of about 4 or 5 cents per minute). Stockholm-based Tele2, with some 34 million subscribers today, was among the first to try out covering people's ETFs, Layton said. Viktor Wallstrom, a Tele2 spokesperson, said it was likely a temporary promotion as the policy hasn't been in effect for years.

The decline of covering ETFs in Europe has been an industry-wide trend, according to Layton. Part of what's going on is that, unlike the United States, Europe has fewer people tied into long-term contracts to begin with — meaning fewer people who might be liable for early termination fees. What's more, in proposing one- and two-year mobile contracts, European Commission officials also opened the option to quit those contracts after six months with no charges except for what customers still owe on their device.

Yet the biggest reason for the decline in early termination charge refunds? Carriers are making less money from connecting each others' calls, said Layton, making it uneconomical for them to offer monetary benefits to consumers.

T-Mobile's idea wouldn't depend on a per-call rebate. But as in Europe, it would be unveiled in an environment where it's increasingly difficult to turn a profit. Especially if you've sworn off resorting to fees and penalties.

Brian Fung covers technology for The Washington Post.
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