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 of wireless
carriers in the U.S.
* Gryta, Thomas. T-Mobile, Sprint Cut Prices After Merger Talks, The Wall Street Journal. Dow Jones & Company, Inc.