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A Price War Rages between Sprint and T-Mobile

A Price War Rages between Sprint and T-Mobile

Potential Merger Fails, Sparking Rigorous Competition in the Wireless Industry

August 25, 2014

Remember when Sprint sought to acquire T-Mobile in a $32 billion merger earlier this summer? Well, it seems the end of that deal (reportedly due to regulatory obstacles) has begun a new battle altogether.

Recent events paint an interesting picture of an increasingly competitive dynamic between these two carriers: Last week, Sprint implemented a new pricing strategy for individual and family plans, offering more data and incentives to lure customers from rival carriers. In direct response, T-Mobile revealed a referral program for the same purpose.*

 

The Details

Sprint

Things have been looking pretty dismal for Sprint, which has lost about 1.2 million postpaid customers in the past year (check out our quarterly Carrier Earnings Reports).

Now, it looks like “Framily” is officially a thing of the past, as Sprint focuses instead on data offerings and lower prices.

According to new CEO Marcelo Claure, Sprint’s new plans and reduced pricing will aim to make up for poor network quality (although Sprint is working to expand its LTE network), as well as widespread confusion regarding its “Framily” plans.

As of late last week, Sprint has been selling plans for $60 a month that include unlimited talk, text and data – and the carrier is even offering to pay up to $350 in contract fees when customers switch* (which brings back memories of T-Mobile’s bold strategy from earlier this year).

Compare these rates to previous “Framily” plans (when Sprint offered a $160 monthly plan for just 4GB of data), and it becomes clear that Sprint is ready to bring its ‘A’ game.

T-Mobile

Meanwhile, T-Mobile has gained about 3.8 million postpaid subscribers in the past year. Now, the “Uncarrier” is fighting to retain its hard-earned customers and keep the momentum going.

It’s definitely been a positive year for the carrier (see T-Mobile Gains Customers, Advances on Competition), but with Sprint’s impressive offers above, the struggle isn’t over yet.

Side-by-side with Sprint’s $60-per-month offer for unlimited talk, text and data, T-Mobile’s identical plan is $80. That $20 difference is perhaps what spurred T-Mobile toward a new offer starting on August 29: Existing customers who refer a new subscriber to buy a plan will earn unlimited LTE data for a year for no extra monthly charge. In addition, customers already on unlimited plans will be rewarded with a $10 credit for 12 months.*

 

Looking Ahead

Looking to the immediate future, this new aggressive pricing will force AT&T and Verizon to react if they want to retain their customers (coincidentally, a main goal of the original merger between Sprint and T-Mobile was to better compete with industry leaders AT&T and Verizon Wireless; now, it seems that goal will indirectly be achieved).

This is especially true due to falling prices resulting in a recent trend of more subscribers and less revenue for carriers.

Furthermore, such a pricing dynamic will put more pressure on the wireless industry, which has generally been experiencing healthy margins and rising revenue per user thanks to increased wireless data usage (although the elimination of subsidies and falling voice revenue have hindered wireless service revenue lately).

If nothing else, it’s clear that the next few quarters will indicate much about the future and status of wireless carriers in the U.S.

 
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* Gryta, Thomas. T-Mobile, Sprint Cut Prices After Merger Talks, The Wall Street Journal. Dow Jones & Company, Inc.


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