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T-Mobile’s Multifaceted Retention Plan
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By Bill Ho, Current Analysis Research Director, Wireless Services
March 4, 2009
Event Summary
March 2, 2009 – T-Mobile has launched a $49.99/month nationwide individual unlimited calling “loyalty” retention offer targeted at customers who have a minimum of 22 months of tenure with accounts in good standing. Also available is an $89.98/month unlimited calling loyalty family plan offer (two lines included) with additional unlimited calling lines offered at $39.99/month. These same eligible customers who port in a new line of service will receive a $135 bill credit within the first two bills. The porting lines do not need to activate on an Unlimited plan as only a $9.99/month monthly recurring charge is required.
Analytical Summary
• Current Perspective: Slightly positive on T-Mobile’s retention plan, because its elements not only try to retain customers nearing the end of their contract terms, but addresses upsell opportunities and also an avenue to bring in switchers, whethere wireline or wireless, with a $135 reward credit. The $50 individual unlimited calling loyalty plans addresses the value needs of those customers who may be considering dropping postpaid and move to similarly priced unlimited prepaid offerings at Boost Mobile, MetroPCS and Leap Wireless. And the unlimited calling family loyalty plan at $90 for two lines offers even more value. However, if T-Mobile lets the genie out of the bottle further as a standard offering, the industry may see some tumultuous times ahead.
• Vendor Importance: Very high to T-Mobile, because the carrier is trying to stanch the alarmingly high customer churn that has risen steadily over the last three quarters, to past 3% overall. The plan is rather calculated as those customers who signed up for T-Mobile’s unlimited calling and messaging plans introduced almost a year ago are not yet eligible for this offer, thereby temporarily mitigating the cannibalization fear.
• Market Impact: Low to moderate on the wireless services segment, because though the $50 and $90 individual and family unlimited calling plans have a head turning quotient, the offers are only available to current T-Mobile subscribers with 22 months of service or greater, with their service in good standing. It’s unlikely that the carrier will open the offer to new customers for the fear of cannibalizing its myFaves plan portfolio and limit its profitability to pay off its emerging 3G network investments.
Current Perspective
We are taking a slightly positive stance on T-Mobile’s multifaceted retention offer, because it combines defensive unlimited calling offers to entice customers who may be susceptible to churn for better plans or handsets at competitors (whether prepaid or postpaid). At the same time, the carrier offers a $135 account credit to entice customers to port numbers from rivals (landline or wireless).
While competition is as heavy as it has ever been in the wireless industry, carriers have no desire to spark a price war. But with economic times as gloomy as they are now, each carrier has been pushing the value message. As many recall, a big competitive milestone was reached a year ago in February as carriers launched unlimited calling plans at the $99/$100 price point, spurred on by the threat of Sprint action and trailblazed by Verizon Wireless. This young year has already milestone reached another, the $50 price point instigated by Boost Mobile (see a href= http://www.currentanalysis.com/COMPETE/Wireless/Report.aspx?rid=48846> Boost Upends the Industry with a $50 National Unlimited Calling Plan, January 15, 2009). Add to the mix the aggressive expansion of regional carriers MetroPCS and Leap Wireless in major markets such as New York, Boston and Chicago, the new Verizon Wireless Friends and Family benefit and all the elements of hyper competition are in place. To be sure, T-Mobile has been experiencing increased churn for several quarters, reaching 3% overall and 2.4% in postpaid (Q4 2008). Therefore, it needed to do something dramatic.
Every carrier has retention plans and they run the breadth of throwing in more minutes or new handsets, but usually are hidden. In contrast due to very public leaks (whether planned or otherwise) and press coverage, this T-Mobile retention plan has sparked a life all its own and has fueled speculation of price wars. Nothing further could be the truth as access to the unlimited calling offers (i.e., $49.99/month unlimited calling individual and $89.98/month family with two lines plus $39.99/month an additional line) is limited to those postpaid customers with 22 months (and in good standing) or more into their two year contracts. While the glass half empty view could be that T-Mobile has lost the higher revenue for customers previously paying more than $50/month, the half full view is that it’s an upsell opportunity for those customers who are below $50/month. Offering an unlimited calling plan is far stickier than throwing a token amount of minutes to the customer. Yet the allure of a family unlimited calling plan cannot be ignored, but the added $135 service credit to port a number from another carrier (landline or wireless) also addresses the issue of much needed net addition growth.
While this is all very attractive, T-Mobile has up a pretty high bar for future retention offers. It is unlikely that larger carriers AT&T and Verizon Wireless will follow suit, but Sprint may be susceptible as it plays to a similar value demographic. It remains to be seen if T-Mobile is successful but the clearest indicator will be its postpaid churn number for Q1, Q2 and Q3 or whenever T-Mobile decides to change this retention offer.
Positives and Concerns
Competitive Positives
• T-Mobile is proactively addressing its churn risk by only offering the plan to customers with service at the 22 month mark and thus are the most susceptible to churn. These subscribers will most likely jump at the offer instead of moving to a prepaid carrier such as Boost Mobile, MetroPCS or Leap Wireless due to a better network with larger coverage, handset variety and avoiding the hassle of switching providers.
• With multiple components of the retention offer, T-Mobile prevents churn but also throws in an element of acquiring switcher net additions with the $135 service credit for porting a number over from another carrier. T-Mobile also minimizes this subsidy by limiting the $135 credit per account, not per line.
• T-Mobile is mitigating its cannibalization risk for those customers who signed up for the unlimited plans February 2008 and later. Those customers would be eligible at best in December 2009, assuming the same 22 months into the contract criteria. FlexPay contract customers are also not eligible for the Unlimted Loyalty plans at this time.
• In porting over a new line/number over from another carrier, the T-Mobile account enjoys a $135 credit with the $35 activation fee waived as part of the credit. This stands to reason as the carrier is pushing the loyalty card and the benefits of staying with the carrier; however, if a subscriber ports their landline number to activate T-Mobile @Home service, this is treated as an add-on and not an activation.
• T-Mobile users may bundle their loyalty plans with messaging/data packages and still come out ahead of current entry-level unlimited offerings by postpaid carriers AT&T, Sprint and Verizon Wireless. For example; individual “loyal” customers can get unlimited voice, messaging and data on their smartphone or BlackBerry for only $85 per month ($50 unlimited voice + $35 unlimited data/messaging), saving $180 per year compared to the $100 /month unlimited plans from competitors.
Competitive Concerns
• While T-Mobile has addressed keeping its loyal customers away from cut-rate unlimited prepaid deals, it has not addressed the topic of adding new customers to its postpaid base against such offers from MetroPCS, Leap Wireless and now Boost Mobile which attract the typical T-Mobile subscriber directly (e.g., more minutes and messaging for less money).
• T-Mobile may be its own worst enemy. For years, the carrier had been putting forth a value message whereby customers knew that they would get more anytime minutes at the same price point as larger carriers, but it has slowly moved away from the value-leader position. The latest move is a step back for T-Mobile, as it is the first national carrier to react directly to Boost Mobile’s Monthly Unlimited plan and regional unlimited carriers MetroPCS and Leap.
• While the $135 credit offer is a tremendous deal, it is also an unnecessary one. The offer of unlimited calling for families starting at $90 is more than enough to keep loyal customers at bay and add more callers to their account.
• While there is a switching component that can draw in new customers, the burden and future credit risk is on the primary account holder to ensure that any additional lines (friends or family) are financially accountable.
• T-Mobile only postpones unlimited calling plan customer cannibalizing since the first customers signed up for two year contracts in February 2008. This puts T-Mobile at risk in late Q4, the height of the holiday selling season. Moreover, the very public nature of this retention plan will make those customers expect availability when its time for their renewal.
Recommended Actions
Recommended Vendor Actions
• T-Mobile should resist pressure to offer the $50 unlimited to new customers. Instead it should revamp and simplify the number of plans in its portfolio. Like Alltel did with My Circle before it, T-Mobile should include and heavily promote myFaves in all plans to avoid customer confusion. If T-Mobile is to do this, it should continue to recognize that, even after it has moved away from a value message, no larger national carrier should offer more minutes at any given price point.
• T-Mobile should have a plan to address those high-value unlimited plan customers who signed up for two year contracts in February 2008. Clearly, T-Mobile does not want to alienate these high paying customers but at the same time, must realize the potential loss of $50 for an individual unlimited calling customer. One option is to discontinue this current retention plan and replace it with different retention deals when the time comes.
• T-Mobile should change around or supplement its retention deals, offering unlimited messaging or unlimited Web access instead of minutes. More recent generations of users value data over voice, and as such T-Mobile should meet these needs.
Recommended Competitor Actions
• AT&T and Verizon Wireless should not succumb to the temptation of hastily matching the $50 unlimited plan. Still, both carriers would be wise to monitor churn numbers directly related to heavy talkers who are prime candidates for low-cost unlimited prepaid plans. If such churn numbers rise quickly, both should proactively contact only prime target customers with a similar, albeit slightly more expensive offer.
• Sprint is in the same boat as both AT&T and Verizon Wireless, and should also carefully monitor churn numbers directly related to its subsidiary Boost Mobile. It too should consider offer a similar unlimited calling deal only if postpaid churn begins to increase with this segment. After all, it is better for Sprint to keep this revenue locked in under a contract rather than move it under no contract at all.
• Boost Mobile should add a family element to its Monthly Unlimited offer. Similar to those from Leap Wireless and MetroPCS, a multiple-line discount starting at $5/month per line, providing all lines are on the same account and under an auto-pay agreement, is a start.
Recommended End User / Customer Actions
• T-Mobile subscribers who are offered the Unlimited Loyalty plans would be wise to take the carrier up on the offer if it fits their calling needs. Compared to T-Mobile’s own unlimited plans for new customers, the Unlimited Loyalty plans will save eligible individual subscribers $35 a month if unlimited messaging is also added and families will save $40 a month for two lines, and up to $70 a month if a full five lines of service are activated.
• Eligible T-Mobile customers who are looking to exit from their landline provider should consider porting their number to T-Mobile @Home service that provides for unlimited calling for $10/month. This takes full use of the $135 credit and pays for more than a year’s worth of @Home service. Still customers should be aware that a specialized router is required for the service.
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