T-Mobile’s Gaffe An Object Lesson for Mobile Industry

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While T-Mobile USA has been the trailer among the U.S.’s Big 4 mobile operators, it always had a reputation for being something of a good guy underdog; no longer. When you use that reputation to bait and switch customers, you’re asking for trouble. And that’s what T-Mobile has found.

You’ve probably heard the news by now that Washington state Attorney General Bob Ferguson censured T-Mobile for what he considers “deceptive advertising” and ordered the company not only to retract its “no contract” claims, but also to alert (and effectively apologize to) all of the folks it has already lured with its messaging.

If we pick apart T-Mobile’s actual offer, it definitely tries to be a bit too clever. Essentially what they’ve done is pro-rate the cost of a subsidized device over a two year period. The pro-rated charge for the phone goes directly onto the bill, but because it isn’t part of an actual plan charge, T-Mobile can advertise lower rate plans without announcing the extra device fee too loudly. If you walk away from T-Mobile before you finish paying for the device, you’ll be charged for the remaining cost. So, technically it’s not an early termination fee,  though practically it is; technically you’re not signing a contract; but practically you’re locked into a two year deal if you want to avoid a big exit fee.

Now, to T-Mobile’s credit, the company is also encouraging AT&T customers to bring their out-of-contract devices over with an offer to unlock them for free. So, if you “bring your own device” in this sense, you can actually get what is basically a contract-free plan with no extra charge for the device. That’s fine with the carrier; if they don’t have to subsidize the device, then they don’t really need to lock you into a contract that assures you’ll cover your device cost. AT&T has made a lot of noise about not allowing customers to unlock their out-of-contract phones, which raises issues about who actually owns and/or controls one’s subsidized-though-ultimately-paid-for device (I do; I spend enough money with you guys, so get out of my phone).  But, despite the debates, the big issue here is really device subsidies, which carriers loathe but are stuck with probably forever.

So, to cut right to the object lesson, here are the takeaways:

1- Stop competing on price. No matter how you spin this T-Mobile deal and its rhetoric about being the “un-carrier,” it’s still a useless attempt to compete on price, or cost to the customer, rather than on value. You’d think that after steadily losing subscribers for years as the low cost carrier T-Mobile USA would have figured this out by now (No wonder DT want’s to ditch it like last week’s meatloaf).

2- You’re not that clever. My father always liked to remind me of the aphorism, “You can fool all of the people some of the time, and some of the people all of the time, but you can’t fool all of the people all of the time.” T-Mobile didn’t fool Washington’s attorney general, and now the cost of forgiveness will far outweigh the benefit of its too-clever tactic.

3 – Social media can destroy you. To quote another aphorism, never forget the “law of unintended consequences.” We live in a world full of outraged social media citizens who have plenty of outlets through which to vent their vitriolic rants. We also live in an anti-Big Corporate environment where folks who need political capital are more than happy to take shots at big corporations who stick their heads above the trench line so that they can demonstrate a record – even if otherwise undeserved – of standing up for the little guy.

Mobile operators spend an awful lot on marketing, so there are few secrets. And there are plenty of watchdogs out there who want to skewer operators over pricing and marketing tactics with any chance they get. So, I come back to #1 above – The industry needs to stop competing on price. It is a slippery slope because it is a losing proposition for everyone. It has already devolved into cutthroat tactics that serve only to alienate customers. People will pay for value if it is offered to them in the right package; a little bit at a time; with one-tap of a touch-screen button; and at a pay-as-you-go, digestable price.

The thing is, in-app purchases and the candy rack at the grocery checkout already show us that you’re more likely to make that extra $20 per customer asking for $2 (give or take) at a time than if you try to trick the customer into spending it up front. (They even teach that in Psych 101…)

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Edward Finegold
About Edward Finegold 122 Articles
Ed is now Director, Strategy for NetCracker. Previously, for 15 years he was a reporter, analyst and consultant focused on the OSS/BSS industry and a regular contributor to BillingViews.

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