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With the MetroPCS merger, T-Mobile firmly embraces the ‘bargain basement’ label

Updated Dec 19th, 2018 8:37PM EST

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When thinking about Deutsche Telekom’s most recent attempts to merge T-Mobile with other carriers, consider the following three points. First, AT&T’s (T) average revenue per user is $65, while MetroPCS’s (PCS) ARPU is $41. T-Mobile has now pivoted from trying to merge with the highest-ARPU mobile operator in America to merging with the lowest-ARPU mobile operator in America. This is profoundly weird. The strategic objectives of these two merger attempts are perfect opposites. AT&T’s ARPU is so high it’s $9 above Verizon (VZ). T-Mobile switched from courting Kate Middleton to hooking up with Khloe Kardashian. This does not have to be a bad thing. But the low-end strategy is something completely different from what T-Mobile was planning to execute just months ago.

Second: MetroPCS lost 200,000 subscribers in the second quarter of 2012. This is not an operator that is grabbing market share aggressively by undercutting the high-end rivals. It is an operator that is losing market share by undercutting high-end rivals. MetroPCS did add 120,000 LTE subscribers in the spring quarter, however.

And third, the MetroPCS device range is really low-rent. ZTE and Huawei feature prominently. It is not a natural fit with T-Mobile’s attempt to rebrand its service with futuristic ads featuring a mysterious girl zooming past AT&T in the cyberpunk cityscape.

What these three points imply is simple. T-Mobile will have to get a lot more aggressive with pricing — it will have to embrace its new bargain basement identity. After the MetroPCS acquisition, T-Mobile will possess 30% of the US pre-paid market. It may have to copycat what Iliad is doing in France and certain challenger operators in New Zealand and South Africa – $30 monthly plans, $8 weekly plans, super cheap Chinese phones, and cut-rate data offers. The current pricing strategy of neither T-Mobile or MetroPCS is working. The merger may be a reset button for T-Mobile after a wasted decade in the US market.

After launching mobile game company SpringToys tragically early in 2000, Tero Kuittinen spent eight years doing equity research at firms including Alliance Capital and Opstock. He is currently an analyst and VP of North American sales at mobile diagnostics and expense management Alekstra, and has contributed to, Forbes and Business 2.0 Magazine in addition to BGR.