T-Mobile Might Lure Customers by Paying Early-Termination Fees

AT&T, Sprint and Verizon Wireless all charge you for breaking your two-year contract. T-Mobile USA might start paying those fees to encourage you to switch.

Paying these early-termination fees (ETFs) might be one of the new strategies that the Magenta Network implements as part of "Uncarrier 4.0" in January. America’s fourth-largest wireless network, which did away with postpaid contracts for new wireless customers earlier this year the beginning of its "uncarrier" plan is ready to unveil "Project Houdini" next month, CNET said. This next phase will give customers who switch as much as $350 in credit for ditching their old provider.

The deal is aimed at families with up to five lines of service, and would be applicable no matter the contract end date. Customers would also get instant credits for trading in their old smartphone. No details just yet from the company, but T-Mobile CEO John Legere tweeted that the Uncarrier 4.0 event would eliminate another customer pain point.”

Looking at the would-be offer, a couple of things come to mind. In its first year as an uncarrier, T-Mobile picked off the low-hanging fruit of customer defections driven by a new approach to device fees and rate plans and (perhaps most importantly) landing the iPhone," noted Yankee Group senior analyst Rich Karpinski. "The results were great, with T-Mobile leading the industry in net adds for consecutive quarters now. But the next wave of customer acquisition will not surprisingly be more expensive."

When T-Mobile did away with contracts, it also ended smartphone subsidies, which forced customers to shell out two to  three times the price for their devices. But the company offers payment plans with no interest, and their monthly rates are lower than its competitors’.

"Eliminating customer device subsidies, as it did last year, certainly lowered its cost per customer acquisition and helped its profitability," Karpinski added. "Luring customers via ETF payoffs (and absorbing trade-in equipment costs to boot) will see its acquisition costs head north again. The success of this latest uncarrier program will depend on just how many subscribers it can pry away from rivals and at what cost. The relatively organic growth T-Mobile scored in 2013 makes it look like a genius. If future growth gets more expensive, investors may look behind the uncarrier curtain, see a more industry-typical, margin-crushing approach to customer acquisition and be much more critical. But give T-Mobile credit for continuing to swing for the fences and keeping the pressure on its rivals.”

Look for it all be spelled out at the Consumer Electronics Show in Las Vegas on Jan. 9.

Follow senior online managing editor @Craig_Galbraith on Twitter.