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

October 3rd, 2012 at 10:35 AM

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.

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