Can T-Mobile’s gamble pay off?


Customers wait in line before the start of a launch party at a T-Mobile store October 21, 2008 in San Francisco, California. (Justin Sullivan/GETTY IMAGES)

T-Mobile changed its pricing game plan Tuesday, announcing that it will charge users for their devices separately from their talk, text and data plans. Nor will T-Mobile require customers to sign on for two-year service plans, or wait for the end of their contract to upgrade to the latest smartphone.

The company touted it as a break from contracts and a new approach to an industry that is “broken.” It says that its approach is more transparent about letting users know what they’re paying for when they turn in their monthly bill.

Those are bold claims, but a fresh approach to the market may be exactly what T-Mobile, the nation’s fourth-place carrier, needs to gain subscribers back, said Yankee Group senior analyst Rich Karpinski.

T-Mobile, he said, has “identified there’s value in being aggressive...they have to shake things up a little bit.”

To see it through, he said, the company has to stick to its message of value plans and do the math for consumers who will likely hesitate about paying near full-price for their devices, even if they save money on data and other plan features in the long run.

Marketing, Karpinski said, will be the company’s biggest challenge.

“A lot of the value is subtle,” he said. After all, the company’s 24-month installment plan for devices may look an awful lot like a two-year contract to most consumers, he said. So the company needs to play up the flexibility of the payment plan, he said, such as the fact that users can trade in their devices without losing the payment progress they’ve made on other phones.

“The payoff is down the line,” Karpinski said. “The customer has to understand that and T-Mobile has to figure out how to make that happen.”

Really savvy wireless customers, Karpinksi said, have probably already figured out how to get better deals from smaller carriers or by leveraging perks and sales. But T-Mobile is in the unique position of appealing to the price-conscious mainstream consumer.

In that way, he said, the company’s decision to market itself as the “uncarrier” could work well if it can convince consumers that there’s enough variation between it and Verizon, AT&T or Sprint. If people are having enough pain with those carriers — or if T-Mobile can convince them that they are — the company stands to scoop up a lot of customers.

Karpinksi doesn’t, however, think that any of those other carriers will be following in T-Mobile’s footsteps.

T-Mobile’s challenge, he said is in getting subscribers. Verizon and AT&T already have plenty of customers and face the challenge of making more money from the customers they already have — which explains why the current model of two- year contracts and share data plans works so well for those carriers.

The value plan approach may work for T-Mobile to build its subscriber base again, Karpinski said, but it might then leave the company facing the problem of how to get more value from customers who have an easy out to join with other networks.

T-Mobile may have solved one problem, Karpinski said, only to face another: how to grow and be profitable.

Related stories:

T-Mobile says it’s leaving ‘the carrier club’ with new pricing structure

T-Mobile USA gets rid of 2-year contracts, introduces ‘installment plans’ for phone buyers

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Hayley Tsukayama covers consumer technology for The Washington Post.

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