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T-Mobile Sparks Price War with Enhanced Simple Starter Plan

Zacks Equity Research

T-Mobile U.S. Inc. (TMUS) has decided to strike back at Sprint’s new offering with a competitive data plan, which could lead to another round of price war within the U.S. wireless industry.

This sheds light on the competitive nature of the U.S. wireless market as it was only some time ago that Sprint Corp. (S) and T-Mobile were contemplating a merger.

T-Mobile has updated its existing Simple Starter plan by quadrupling the data capacity. Along with unlimited voice and text, the new plan will offer 2GB of LTE data for $45, at only $5 more than the current one. The new plan will be available from Sep 3, 2014.

After the 2GB threshold is exhausted, the service will get suspended and subscribers need to buy either a single day 500 MB data pass for $5 or choose a week-long option, which provides 1GB data for $10. However, the new plan does not include international service package and provides only 50 MB of data while roaming.

After the proposed merger between T-Mobile and Sprint fell apart owing to regulatory hurdles, the latter introduced its new unlimited Talk, Text and Data plan for $60 per month for new and existing customers. This was $20 cheaper compared to T-Mobile’s unlimited data plan. However, Sprint’s plan does not include the cost of the phone.

T-Mobile’s prompt response to Sprint’s action underlines the former’s desperate efforts to win subscribers over from its rivals. Notably, T-Mobile’s plan is cheaper than Verizon Communications Inc.’s (VZ) 2 GB offering, which comes at $50 per month with an Edge handset upgrade plan. Even Verizon’s overage fees start at $15 for 1GB. Rival AT&T Inc.’s (T) similar plan costs $20 more. Moreover, customers either need to bring their own device or finance one through its Next handset upgrade program.

Cut-throat competition within the sector had led T-Mobile to start its Un-Carrier 4.0 initiative, which pays off the early termination fees for customers switching over to the company from three other traditional carriers.

The rivalry has once again come alive as T-Mobile has vowed to provide a one-year LTE subscription, free of cost, to subscribers who can successfully convert non-T-Mobile users to the carrier, starting next week. Notwithstanding, the new subscribers will also be able to enjoy the free subscription.

T-Mobile boasts a super-fast LTE network and has successfully expanded its network coverage to 233 million people. We believe such low-cost plans will lure new subscribers to T-Mobile, particularly those who are cost-sensitive.

However, customers will benefit the most from this price rivalry, which could pull down wireless prices even further. However, we remain on the sidelines to gauge whether these efforts on T-Mobile’s part will be strong enough to challenge Verizon and AT&T’s dominance in the telecom space.

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