T-Mobile tries to make plan-changing painless

A T-Mobile connected iPhone 5 is shown on display after John Legere, CEO and President of T-Mobile USA made an announcement during an event about new contract pricing on March 26, 2013 in New York City.

A photo tweeted by Roger Cheng of CNET with T-Mobile CEO John Legere that inadvertently got Legere kicked out of the AT&T party that he crashed.

T-Mobile is trying to move up from its current No. 4 position among U.S. wireless carriers -- behind Verizon, AT&T and Sprint -- and it’s been throwing pricing-plan bombs at competitors as part of its underdog marketing campaign.

At a press conference this Wednesday at the International Consumer Electronics Show in Las Vegas, T-Mobile announced it will offer up to $650 dollars per line in credits to customers who switch from one of the other big carriers. The incentives are to cover up to $350 for the cost of early termination fees (ETF), which can run several hundred dollars on a two-year lock-in contract, plus up to $300 toward the cost of a new phone (identical phones are often not interoperable between carriers).

In this competitive battle, T-Mobile isn’t playing nice. In Las Vegas earlier this week, the company’s CEO, John Legere, crashed a private party thrown by AT&T for its developers—and got kicked out.

“Actually, that was my fault,” says Roger Cheng, executive editor at CNET News. Cheng saw Legere when he got out of his taxi at the party venue, took a snapshot of the two together (Legere wore a leather jacket and a pink tee shirt with a T-mobile-logo), and tweeted the photo out.

“John Legere obviously has taken on this ‘rebel-breaking-the-rules’-type persona,” says Cheng. Within fifteen minutes of his tweet, “security guards surrounded him and escorted him off the hotel’s property.”

This isn’t just party pranks. Cheng says T-Mobile’s going after the core business of AT&T, Verizon and Sprint—long-time customers on long-term contracts, often on family plans with multiple lines and expensive smart-phones.

“T-Mobile has spent the last year addressing certain things that consumers are irritated with,” says Cheng, “like contracts, the ability to upgrade faster, and now, these early termination fees.”

Consumers are definitely irritated by the cellphone industry. But getting them to switch isn’t easy. Turnover between carriers is quite low.

And so here is the problem T-Mobile is up against: people like Emily Kinzig, 35-years-old, from a suburb of Nashville, Tennessee.

Kinzig and her husband have AT&T. They pay about $140 per month, and Kinzig suspects they could do better if they shopped around—if they could only understand the different pricing plans of different carriers and compare. Recently, she upgraded her iPhone: “which means that I am suddenly smack-bang in another contract for two years,” says Kinzig. “We never end up switching, it just seems more complicated than it’s worth to even try to figure out if we could get a comparable plan with someone else. It would just be a lot of fuss, a lot of hassle.”

T-Mobile’s incentives are making a dent: the company has been adding customers at the fastest pace in four years.

“There are clearly a lot of consumers who are up for grabs, who have migrated to T-Mobile to at least give them a try,” says Bill Menezes, principal research analyst at Gartner, “knowing that they could walk away without paying hundreds of dollars in termination fees.” And he points out that Verizon, AT&T and Sprint have all introduced counter-incentives and cheaper pricing in response.

Menezes says T-Mobile has certainly disrupted the market with its moves over the past year to eliminate long-term lock-in contracts, to allow consumers to pay for phones up-front or on installment without a carrier subsidy, and now, to cover early-termination fees and new-phone-purchase costs for customers who switch to T-Mobile.

But he questions whether the business model is sustainable. He says long-term, T-Mobile and all the other carriers want customers to be ‘sticky’—to be incentivized to stick around for a long time, or to face impediments to leaving for another carrier, such as early-termination fees and staggered renewal dates among multiple family members.

Menezes points out that just like its rivals, T-Mobile wants people to stop switching carriers, once they’ve switched to T-Mobile. But with its iconoclastic marketing and pricing, it may make it easier for customers to painlessly leave for a better deal down the road.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.

A photo tweeted by Roger Cheng of CNET with T-Mobile CEO John Legere that inadvertently got Legere kicked out of the AT&T party that he crashed.

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