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T-Mobile Customer Plan to Spur Rivalry

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U.S. telecom operator T-Mobile U.S. Inc.’s (TMUS) new Uncarrier 4.0 plan is expected to be accretive to its customer acquisition plan. But at the same time, it will also renew competition with bigger names like AT&T Inc. (T) and Verizon Communications Inc. (VZ).

If media sources are to be believed T-Mobile’s Uncarrier plan will buy out the early termination fees of customers when they switch to their network from another carrier’s network. The plan is expected to benefit T-Mobile in terms of subscriber churn, thus taking a slice of their market.  The new Uncarrier plan is expected to debut in the Consumer Electric Show, early January.

This bold new plan follows a series of marketing strategies from the fourth largest U.S. carrier to fuel its customer growth. In Mar 2013, the company started offering instalment-based smartphones and in October, it scrapped extra fees charged for data and texting in over 100 countries across the world.

Recently, the company’s prepaid arm joined forces with Facebook Inc. (FB) to offer unlimited access of the popular social media site to its customers, including those who don’t have data on their plan. T-Mobile is the first operator in the U.S. to offer free FB access to customers.   

However, the new plan could turn out to be a matter of grave concern for the industry as a whole. We believe bigger rivals will respond either by bringing in similar plans or by reducing tariff rates to stop the possible sufferings, thus reducing ARPU in the process. Lower ARPU will consequently lead to lower margins thus weakening the sustainability power of the industry.

Of late, Softbank, which already owns 80% of Sprint Corp., is eyeing T-Mobile U.S. for around $20 billion. However, the deal might face regulatory challenges from Federal Communications Commission along with competition from satellite provider Dish Network Corp, which is also mulling a possible takeover bid for T-Mobile.

T-Mobile currently carries a Zacks Rank #3 (Hold).

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