Jul 11, 2013 09:30 AM EDT
Verizon Wireless, AT&T Inc and Sprint Nextel Corp offer phone discounts in exchange for tying customers to two year contracts and typically do not allow phone upgrades during that period.
T-Mobile, which is under pressure to stem years of customer losses, said it is already seeing good results from its efforts to differentiate itself from bigger rivals. Now, it is betting people will switch to its service because they want to change phones more often than its rivals allow.
"You can upgrade when you want, not when you're told," T-Mobile Chief Executive John Legere, who was appointed in September 2012, told reporters and analysts at a New York event where he announced the changes.
Legere told Reuters he expects the offer to improve customer loyalty and to increase the number of new customers T-Mobile lures from other carriers each quarter without having a big financial impact on the company.
The No. 4 U.S. mobile provider also hopes to attract more customers who pay for calls in advance by offering a prepaid family plan that does not require a credit check.
It said its $100 monthly fee for a family of four is about $100 less than AT&T's service. It expects a lot of interest in the service as it estimated that a third of U.S. families would not pass the credit checks required for typical family plans.
AT&T and Verizon attribute much of their success in retaining customers to these plans because it is harder for an entire family to change service than an individual.
Customers who want frequent phone upgrades must sign on to a service called Jump that requires them to pay a $10 monthly insurance fee on top of monthly service fees and a one-off down payment that partially covers the cost of the phone. They are also charged a monthly fee of up to $20 per month to pay for the remainder of the phone.
When T-Mobile customers want an upgrade, they can bring a phone to a store and swap it for a new device. They pay another down-payment and resume monthly payments for that device. The moves follows T-Mobile's elimination in March of long-term contracts and handset subsidies.
T-Mobile will lose money in some cases if a customer trades in a lower value phone for a more expensive one, according to Chief Financial Officer Braxton Carter.
But he told Reuters this would likely be evened out by the fact that popular phones such as the iPhone can keep as much as 70 percent to 80 percent of their original value after a 6-month trade in. The company will then sell those phones back to customers looking for a discount.
"We'll definitely attract more customers to our company by having this innovation," Carter said. "By attracting more customers, we're attracting more revenue and (better) margins. This is a greater retention tool."
The event on Wednesday was T-Mobile's first media function since it merged with MetroPCS in April.
Some analysts said the new plans could prove popular. But Avi Greengart of Current Analysis questioned whether customers would leave big providers because Verizon's network has a good reputation and AT&T has a huge number of customers tied to family plans that are hard to leave.
However, Greengart said the move should make those companies "sit up and take notice."
T-Mobile also announced that customer defection rates are lower than ever because of new marketing efforts and the introduction in April of the Apple Inc iPhone, which accounted for 29 percent of its smartphone sales in the second quarter.
While the company would not disclose total customer numbers for the second quarter, it believed it had added the most net customers of all the national U.S. carriers, at least in several major U.S. cities. It cited strong customer growth compared with its rivals in cities such as New York, Los Angeles, Miami, Houston and Dallas.
T-Mobile shares closed 1.3 percent higher at $24.42 on the New York Stock Exchange.
(Reporting by Sinead Carew. Editing by Andre Grenon)
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