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T-Mobile Hikes iPhone Rates

Zacks Equity Research

The fourth-largest carrier in the U.S., T-Mobile US, Inc. (TMUS) recently decided to hike the installment payment rates of Apple Inc.’s (AAPL) iPhone 5 by $50, after selling the device for a reduced rate last month.

Unavailability of Apple Inc.’s iPhones in its smartphone portfolio coupled with the lack of 4GLTE spectrum has led to a continuous loss of subscribers for T-Mobile USA in the last four years. Moreover, the U.S. telecom market is hugely dominated by top two carriers – Verizon Communication Inc. (VZ) and AT&T, Inc. (T), which has resulted in a heavy decline of customers for the company.

In order to improve its present scenario, T-Mobile USA started selling contract-less iPhone 5, iPhone 4S and iPhone 4 for $580, $550 and $375, respectively with a two-year installment option.

During the first month, it is believed that T-Mobile US sold nearly 500,000 iPhones, hence its new strategy worked wonders for the company. However, from this month, the company plans to raise the down payment price of the iPhone 5 to $100 and the remaining balance is to be paid in installments ($20 for the next two years).

Hence, we believe that such a move by T-Mobile US will reduce pressure on its current cash position and will also drive subscriber growth, going forward.

Recently, T-Mobile US completed its merger with MetroPCS Communications, Inc., which will solve most of its problems. The combined entity will gain more spectrums, thereby deploying 4GLTE technology across its footprints.

All these strategies laid down by T-Mobile US is already showing signs of improvement as in the recently concluded quarter the company gained 3,000 subscribers as compared with a loss of 261,000 subscribers in the prior-year quarter.

Therefore, we believe that T-Mobile US will become a strong player and will intensify competition going forward.

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

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