T MOBILE US INC (TMUS) Needs a Long-Term Plan

Several months ago, T MOBILE US INC (NYSE:TMUS) unveiled a new pricing strategy aimed at winning customers back from larger rivals Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T), and Sprint Nextel Corporation (NYSE:S). T-Mobile decided to do away with the traditional subsidy model, where customers sign a two-year contract and are then entitled to a discounted smartphone.

Instead, T MOBILE US INC (NYSE:TMUS) customers were given the option of paying for their phone upfront or making a small down payment and then spreading the cost over 24 monthly installments. Either way, users were not tied into a service contract (however, phones bought through T-Mobile would not be unlocked until they were paid in full). The biggest upside for customers was lower monthly service fees. This would lead to much lower bills for customers who did not need or want a new phone every two years.

However, T MOBILE US INC (NYSE:TMUS) has had trouble sticking to the plan. While the no-service-contract policy has remained constant, pricing and terms have changed repeatedly over the last four months. Most recently, T-Mobile announced that it would be doing away with down payments entirely — for now. The constant changing of prices and policies is more likely to confuse customers than attract them. T-Mobile needs to figure out what pricing strategy seems most promising, and then give it time to work. Otherwise, failure is certain.

Variable pricing
The confusing nature of T MOBILE US INC (NYSE:TMUS)’s pricing changes can best be seen in the fluctuating price of Apple Inc. (NASDAQ:AAPL)‘s iPhone 5 since it launched on the network in April. The 16 GB iPhone 5’s initial price at T-Mobile was $99.99 down plus $20 per month for 24 months. That worked out to a total payment of $579.99 over 2 years, roughly $70 less than the Apple Store’s price.

A month later, T MOBILE US INC (NYSE:TMUS) raised the down payment for the iPhone 5 by $50 while leaving the installment payments steady at $20/month, stating that the initial pricing was a limited-time promotion. Earlier this month, T-Mobile tweaked pricing again, cutting the down payment by $4 and raising the monthly payment by $1 to $21 per month. It’s probably not a coincidence that the iPhone 5 cost $649.99 after these machinations, which is essentially the same unlocked price as Apple Inc. (NASDAQ:AAPL) and its other carrier partners offer.

Last Friday, the company introduced yet another pricing scheme. This time, T MOBILE US INC (NYSE:TMUS) is getting rid of the down payments, while raising the installment payments to offset that loss. The 16 GB iPhone 5 now costs $648, payable in 24 monthly installments of $27. This move is also touted as a limited-time promotion.

Is this helping?
It’s hard to know exactly what executives at T MOBILE US INC (NYSE:TMUS) headquarters are thinking. The iPhone pricing changes may be tied to some extent to Apple Inc. (NASDAQ:AAPL)’s regulations on pricing for resellers. T-Mobile’s recently introduced “JUMP” early upgrade plan may also be playing a role. The JUMP program allows customers who pay a $10 monthly fee to upgrade their phones as often as twice a year. It could be that some of the pricing changes were designed to make the early upgrade offer financially workable.