Understanding T-Mobile's Free Video Play

I've been watching the message board talk about T-Mobile's "Binge On" free video streaming and I have to say that I think some of you are not grasping the strategic thrust of what the carrier is trying to do.

T-Mobile US Inc. 's CEO John Legere likes to say each "Un-carrier" move is reducing "pain points" for customers. Indeed, video streaming for HBO and Hulu subscribers on the T-Mobile network that doesn't count against their data bucket is undoubtedly going to save some users some money, as well as attracting new subscribers. (see T-Mobile Goes OTT With Free Video Streaming.)

But there's always another element too: Legere likes to riff on how the wireless industry is "broken" and is never slow to go after his wireless rivals. The T-Mobile team is continually pushing AT&T Inc. (NYSE: T), Sprint Corp. (NYSE: S) and Verizon Wireless to follow their lead or eat their dust.

This has worked well with device loan programs and global roaming. I think the video streaming move is one that most carriers won't be following. In fact, they probably can't follow them because of bandwidth and cost constraints.

(By the way, to understand why this duality of approach is prevalent in the Un-carrier moves, you only have to look at Legere's fascination with Batman. A super-rich man-about-town that moonlights trying to fight the injustices he perceives in the world. Come on!)

For more on mobile, visit the dedicated section here on Light Reading.

So why video streaming?
What T-Mobile wants to do now is get some clear water between itself and Sprint and establish itself -- even more than it has -- as the hip alternative to AT&T and Verizon. I doubt it can catch Ma Bell or Big Red in sheer subscriber terms but it can offer a serious third choice for the consumer.

Free video streaming is one way to do this. Remember that T-Mobile has around twice the spectrum per user as AT&T and Verizon at present. Verizon has even said that it needs some more high-band spectrum to add capacity. (See Verizon to Start Deploying LTE-U in 2016.)

What T-Mobile still needs to do is add more users and devices to its network. In simple terms, it has the radio room to expand.

This won't just mean adding more smartphones, but tablets too. I heard on the grapevine that T-Mobile was stocking up tablet inventory ahead of the Un-carrier X announcement. Plenty of people already watch a boatload of TV on their tablets. With a 3GB plan for the tablet, T-Mobile users -- new and old -- get free video streaming on device.

And make no mistake, this is about acquiring new customers and keeping existing ones. As Tom Nolle points out on our message boards, capital expenditure costs are about 20 cents on the dollar, customer acquisition costs are about 12 cents on the dollar. So T-Mobile has a chance to offset the costs of free video streaming. (See Operators Blunder in Online Video Era.)

And the more it adds customers and reduces churn, the more attractive it becomes as acquisition possibility. Oh sure, I don't believe Deutsche Telekom AG (NYSE: DT) is in any hurry to sell off T-Mobile and I think it will want a pretty penny for it.

That doesn't mean it won't happen in future though. Who will buy? I'm not sure yet. Perhaps Carlos Slim could engineer a reverse Ma Bell (don't try this at home!) and use T-Mobile to go North of border?

So, T-Mobile's Legere loves to sell these Un-carrier moves as altrustic for consumers, and they may be that, but there's a strategy behind them too.

— Dan Jones, Mobile Editor, Light Reading

COMMENTS Add Comment
kq4ym 11/27/2015 | 7:26:46 PM
Re: Familiar ring The "free" gimmick is certainly a big advantage in marketing the company and customers should gladly accept the benefit. Reducing customer churn should be one of the great cost savings down the road, assuming enough new ones can be converted over a reasonable time.
danielcawrey 11/16/2015 | 2:18:12 PM
Re: Familiar ring Free video streaming is a tremendous opportunity for T-Mobile to gain new subscribers. This is especially true for the demographic that watches a ton of video on mobile devices. 

By getting younger people onboard with T-Mobile early, the company can in turn convert them into higher paying customers over time. This may be a much cheaper method of attracting and retaining customers by offering something for free. 
mendyk 11/16/2015 | 9:26:03 AM
Re: Is it ethical to sell something you can't deliver..? Dan -- Apparently the Binge On noise helped distract attention away from a price hike that T-Mobile's CEH touted to nervous investors right after his Binge moment.
DanJones 11/13/2015 | 7:25:41 PM
Re: Is it ethical to sell something you can't deliver..? Seriously though, where are you located? Maybe I can figure out if they're going to add low-band spectrum there (better capacity, penetration), I want to speak to the CTO again soon anyway.
DanJones 11/13/2015 | 7:19:42 PM
Re: Is it ethical to sell something you can't deliver..? If you don't think they're aiming at a young cord-cutting demographic, you're deluding yourself. Just look at the ads!
mendyk 11/13/2015 | 4:36:11 PM
Re: Is it ethical to sell something you can't deliver..? Legere said it's free. He didn't say it would actually work.
VernonDozier 11/13/2015 | 4:22:59 PM
Is it ethical to sell something you can't deliver..? As a T-Mobile customer, I liked the reasonable price for service, and features like HD voice calls. However, and more recently, I'm dropping calls where I didn't used to. The network is over loaded, and it doesn't make sense to offer a new "Unlimited" service when existing services including voice aren't on-par to the quality a competitor provides. The company goal must be churn. T-Mobile execs must be willing to offer a lower-quality product to get customers to purchase and carry a 2nd phone-- one which works, and another which has a lot of free services included. Just before this new service was announced, TMobile announced a new LTE cellspot microcell device. It connects to my home or office Internet and provides unmetered (up to 60 Meg of bandwidth) service for up to 16 customers. For many families, this is 50% (or more) of the bandwidth a customer pays to their ISP. However, it allows T-Mobile to buy advertising, promote the product, and (hopefully) lift stock values rates last seen in 2013. 2013 was the year CEO John Legere's compensation was $25M. You can look at this one of two ways-- 1. T-Mobile's target demographic is a big family of "binge watchers" without cable service or 2. T-Mobile is counting on its customers to subsidize and provide the service the company bills customers for. Either way, the company probably is experiencing a lapse in ethics.
DanJones 11/13/2015 | 3:46:53 PM
Re: Familiar ring That's the theory, they also get to possibly add tablets and a data plan to existing customers.
mendyk 11/13/2015 | 1:43:07 PM
Familiar ring This sounds a bit like, lose money on every new customer, but make up for it in volume. Maybe a service equivalent of chip-dumping.
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