T-Mobile: How Low Can It Go?
Instead, the fourth-largest U.S. carrier, written off by many subscribers in the nine months that the merger attempt has dragged on for, could be planning steep price cuts to regain market share. And, that could have reverberations for the entire industry, according to one analyst.
Mizuho Securities USA Inc. analyst Michael Nelson put forth this theory Tuesday, noting that an independent T-Mobile could lead to incremental pricing competition, since the value provider is losing post-paid market share to the national carriers and pre-paid market share to MetroPCS Inc. (NYSE: PCS) and Leap Wireless International Inc. (Nasdaq: LEAP).
"With the deal now dead, we believe there is increased risk for the industry that T-Mobile may pull the pricing lever and implement disruptive pricing plans in an effort to regain market share," Nelson writes in a research note.
Without the iPhone or a clear path to Long Term Evolution (LTE), T-Mobile has already started down the price-slashing road. Jim Alling, T-Mobile's COO, took to the company's blog to remind consumers about these plans once news of the merger fail broke.
"We’re offering our best plan ever -- 2 lines for $49.99 each that includes voice, text and data (including 2GB at full-speed) on each line with a new 2-year agreement," he wrote. "We also now offer a Monthly4G no annual contract plan that gives you unlimited talk, text, and web (including 100MB at full-speed) for $50.
T-Mobile claims its new value plans already represent savings of $35 compared to AT&T, Verizon Wireless or Sprint Corp. (NYSE: S). But the question is, can T-Mobile go even lower? (See T-Mobile Stems Sub Losses With Pre-Paid Plans, T-Mobile & Walmart to Offer $30 HSPA+ Plan and T-Mobile Shakes Up Pricing Sans Unlimited Data .)
Right now, the carrier isn't saying how, or if, it will change its data plans, but it will likely have to do something drastic to get back on track in the U.S. Mizuho's Nelson believes pre-paid users will be its first target, which could put pressure on its smaller competitors, as well as Sprint's four pre-paid brands.
"Increased price competition would be negative for the entire industry; however, we believe PCS and LEAP are most at risk since they compete largely on price and we would expect T-Mobile to target prepaid customers," he says.
— Sarah Reedy, Senior Reporter, Light Reading Mobile