Gloves are off for Sprint and T-Mobile US
Within the space of three weeks, Sprint and T-Mobile US have gone from potential allies to enemies in a price war that threatens to destabilise the US telecoms market. Having abandoned its takeover pursuit of T-Mobile US in early August over regulatory concerns, Sprint started to put a new pricing plan into action last week. It had previously made clear that it wanted to reverse the loss of customers to T-Mobile with aggressive offers of its own. Among these offers is now an unlimited data package at $60 a month, well below the previous price of $80 a month, and also $20 cheaper than T-Mobile’s comparable offer (albeit without a subsidised phone). Sprint has also launched a family service plan with double the data available from AT&T and Verizon for a family of four. But T-Mobile, Sprint’s Deutsche Telekom-controlled rival, has made clear that its own efforts to shake up the market are far from over. On Monday, T-Mobile quadrupled the data limit of its entry-level Simple Starter plan, which costs only $5 a month – just a week after launching a ‘Sprint customer rescue’ campaign giving customers who refer a friend unlimited data for a year. John Legere, T-Mobile US chief executive, said: "The old guard telecoms punish people for using more data on their networks with crazy . . . charges and fees. Get Verizon’s $50 plan and use just one gig more data, and the price jumps to $65. It’s crazy!" But even Verizon – one of Mr Legere’s "old guard" – has unveiled a single line plan with 2GB of data for $60 per month, with a subsidised phone. Across the board, promotions have increased, with US mobile users bombarded with offers of credit, lower charges and extra data – leading Bernstein, the research group, to warn of the "dangers of tariff wars surfacing in the US". As a result, T-Mobile is finding its position as "best-value challenger" under threat from Sprint, while the larger AT&T and Verizon are at risk of losing customers to rivals offering more data at lower prices. However, behind the rhetoric – in particular that of Mr Legere – some analysts suspect that all four major US operators may want to avoid the kind of all-out price war seen in markets such as France. There, low-cost offers from Iliad’s Free service led to prices across the market being slashed by one-third in a little under two years – with a corresponding affect on profits. JPMorgan offered some hope to those seeking a better outcome in the US by describing the latest Sprint deal as more of a "price restructuring rather than a price cut" – and pointing out that Sprint gave more data "but on what is still a weaker network". Jefferies, likewise, questioned how much damage Sprint could do given its network quality disadvantages. Rival operators may therefore have more to worry about when Sprint – flush with cash from its Japanese owner SoftBank – narrows this service quality gap through network investment. Sprint has promised superior services using Spark, a tri-band LTE network, which will be available to 100m people by end of the year. Even so, with its network offering still lagging behind the other three, Sprint is unlikely to be finished with price offers – especially if T-Mobile meets it head on with further discounts of its own. Hannes Wittig, analyst at JPMorgan, said Sprint should be determined to prevent further customer losses: "We feel a bit reminded of the market view on T-Mobile little over a year ago. Companies were able to regain momentum, based on a cash flow sacrifice, despite seemingly inferior network quality at the outset." The question is how far T-Mobile and Sprint are willing to go to attract customers from the two larger networks – and stop their own from leaving. "We expect Sprint, with its new network, to do whatever is needed to no longer feed its peers with churning customers," Mr Wittig said. Mr Legere, a prolific tweeter, made it clear on Monday that the battle between the US carriers is far from over. "Last week I announced unli’d 4G LTE data for you and a friend. Today, quadruple data for #simplestarter plans. #wewontstop. Ready for more??"