The Exchange

T-Mobile ends overage fees, with more cuts to come: CEO Legere

T-Mobile Announces $40 'Simple Starter' Plan With Unlimited Talk, Text, And 500MB Of Data
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T-Mobile CEO John Legere has promised that a number of new Uncarrier initiatives will be revealed this week, and the first of those is a $40 "Smart Starter" plan. Set to launch on April 12th, Simple Starter bundles unlimited talk, unlimited text, and 500MB of wireless LTE data at a monthly rate that's $10 cheaper than T-Mobile's baseline Simple Choice plan.

T-Mobile (TMUS) announced Monday it was ending monthly overage fees, with outspoken chief executive John Legere forcefully pounding the message that the fourth-largest U.S. carrier will continue making war on its larger rivals for the rest of 2014.

“We need to reassert our position that we will never stop,” Legere said in a phone interview. “It’s almost endless.”

On Monday T-Mobile said it would eliminate overage fees, those surprise charges that pop up on monthly bills after a customer uses more minutes, texts or data than their plan allowed. Instead, T-Mobile said it would allow unlimited voice and text on most plans and shift customers to slower downloads when they used up their data allotments. Customers can also go to T-Mobile’s website and purchase additional high-speed data at $10 per 2 gigabytes. The change takes effect in May for bills arriving in June. 

T-Mobile set up a petition on Change.org seeking the elimination of overage charges at all carriers. "We're trying to get millions of Americans to flip the bird on this insanity," Legere says.

The latest moves follows a pair of price cutting announcements last week, chopping the cost of T-Mobile’s entry level plan to $40 a month and giving tablet customers up to 1.2 gigabytes of data free per month. And, of course, all are a continuation of Legere’s “Uncarrier” strategy that started over a year ago, cutting fees, separating out the cost of new phones from monthly bills and eliminating international roaming fees. Legere says another major piece, what he calls “Uncarrier 5,” will be coming soon as well.

Shares of T-Mobile fell 32 cents, or 1%, to $26.69 on Monday as investors weighed the impact of the latest cuts. T-Mobile brought in 4.4 million new customers last year but its momentum slowed in the fourth quarter amid reactionary moves by some of its rivals.

Some analysts thought T-Mobile might be slowing this year, after the company tried to eliminate corporate discounts but then backed off the move, grandfathering current customers. And Legere got into a spat with Blackberry (BBRY) CEO John Chen over a T-Mobile trade-in program aimed at Blackberry phone owners.

Focus on customers

Legere says ultimately corporate discounts and other special plans will become unnecessary as T-Mobile simplifies and lowers the cost of its general plans. But, he adds, the decision to grandfather existing plans reflects his focus on customers.

“That’s not a fumble. That’s a way of doing business,” he says. Noting his personal attention to customer reactions on Facebook and Twitter, he explains, “There was a strong pushback by some of our most loyal and longstanding customers.”

The two largest carriers, AT&T (T) and Verizon Wireless (VZ), have moved to match some of T-Mobile’s new policies, though generally in more limited and less customer-friendly fashion. This month, for example, Verizon cut prices on some of its most expensive family plans, tracking a similar reduction AT&T instituted in February. Both plans remain considerably more expensive than equivalent plans from T-Mobile. Third-place carrier Sprint (S), which has looked at acquiring T-Mobile in the past, has also imitated some moves, such as refunding early termination fees, though for only a limited time.

T-Mobile operates with lower profit margins than AT&T and Verizon, and many of its high-profile fee cuts attack practices where it doesn’t make much compared to the big two. “Almost all of that is not in our income statement,” Legere says, referring to the industry's current profits from international roaming fees and overage charges.

Likewise, he defends as economically sustainable the T-Mobile offer to pay up to $650 in early termination fees for switching family plan customers. “The economics are quite positive – they come in families, not as ones,” he says. “And we’re getting very good, solid, high-value customers."

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