Author(s): Raghu Gopal
On Monday, Times Square in New York went pink as T-Mobile USA took over a Broadway block to promote its latest "un-carrier" move. Its spirited CEO, John Legere, hyped the crowds, denigrated the carrier's rivals and talked about the need for change in the wireless industry.
Mr Legere talked about giving T-Mobile's loyal customers a "good thanking" by giving post-paid subscribers no-strings-attached perks such as free airline Wi-Fi access, milkshakes at burger chain Wendy's, pizza from Domino's and movie tickets.
Perhaps one of the most interesting carrier promotions to date is T-Mobile's "Stock Up" plan, under which post-paid subscribers have the possibility of earning company shares. Each post-paid primary account holder can receive one share of T-Mobile USA — currently valued at $43. Furthermore, customers can earn more shares by bringing in new subscribers. It's a network marketing campaign of sorts. Subscribers aren't just being turned into company owners, they're becoming brand ambassadors.
Shares are to be held in a cost-free brokerage account established through T-Mobile's partner Loyal3, and can be sold without charge within 12 months of receiving them. After this, Loyal3 may charge $5 to begin selling them. T-Mobile will begin purchasing outstanding shares on the open market for this distribution plan. It currently has 30 million post-paid phone customers, but only 12.6 million accounts. Nonetheless, the initial costs of its "Stock Up" plan could reach $550 million assuming 100 percent account holder interest.
This promotion from T-Mobile has echoes of the hugely successful O2 Priority and Reward programmes in the UK. Given the recent speculation around an initial public offering for O2, perhaps Telefonica should consider extending any offering to its O2 UK subscribers. O2 already demonstrates industry-leading churn and loyalty, and would be almost impossible for its competitors to match.
This is certainly an expensive loyalty scheme for T-Mobile USA, but one that could pay off if it decreases churn and pulls in new subscribers. According to the carrier's results for the first quarter of 2016, its average revenue per post-paid phone subscription was $46, about the price of one share of T-Mobile USA stock. In essence, T-Mobile is giving away one free month of service in a convoluted and clever way.
The US wireless industry is seeing intense promotional activity amid competition between the major carriers. T-Mobile's post-paid churn rate is coming down, but in this saturated market, each subscription counts more than ever, and all wireless carriers are offering freebies rather than reducing service fees. We recently highlighted the resurgence of buy-one-get-one-free deals in the US wireless market (see AT&T's Two-for-One Offers).
One trend seen in the past few weeks is carriers giving away large-screen Samsung televisions with the purchase and activation of one or several Samsung smartphones. Samsung is working with carriers to keep its own momentum moving forward in a market stuffed with competition.
T-Mobile's subscriber stock ownership plan is a new type of subsidy, which will require some bookkeeping magic to account for. Although average revenue per user isn't affected and device costs remain the same, subscribers can do the maths. This is a free month of service plus the psychological feeling of belonging. Customers could feel like they are contributing to their retirement rather than just paying another monthly fee.