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November 10, 2015

Lowenstein Commentary on T-Mobile Announcement
Dear Lens Subscribers,

It's doubleheader day!  Below is my initial commentary on the T-Mobile Un-Carrier X announcement, just released.

Today, at its Un-Carrier X announcement in Los Angeles, T-Mobile made two significant moves. The highlights:
  • Update to its Simple Choice Plan, which gives customers double the amount of data on its flagship Simple Choice Plan. This is accompanied by a price increase from $10/month to $15/month, for each level of additional data. There are similarly compelling increases in the data allotment for families and small businesses. More details here.  

  • "Binge On", which allows customers to stream an unlimited amount of data on 24 popular streaming services such as Netflix, Hulu, HBO, and Sling. As part of this, T-Mobile announced it is taking several steps to make its network more efficient at handling video, using methods such as adaptive bit rate coding.
These are some bold moves by T-Mobile. They will help keep the net add momentum going for the company for the next few quarters, at least. The video moves, especially, provide another stake of differentiation for T-Mobile, and will also help the company add share in the Millennial segment.
Simple Choice Changes
If T-Mobile has the capacity to accommodate the increased data usage, as it insists it does, then the Simple Choice Plan changes are a smart move. Data is the currency of wireless subscribers, and from a consumer's perspective, T-Mobile has cut the effective per GB price of 4G LTE data nearly in half. The discount compared to Verizon and AT&T is now pretty substantial. It would be hard for Verizon and AT&T, given their network capacity situations and the size of their customer bases, to match this.
On the other hand, T-Mobile has consistently had the lowest ARPU among the Big 4. T-Mobile addresses this with the new Simple Choice plans. Subscribers who want more data will have to pay a bit more for it. Yes, customers are paying a lower effective price per GB for data, but they will have to pay from $5 to $15 per month more if they opt for anything on top of the $50 entry-level SC plan. With these new plans, T-Mobile takes some steps to "right size" the ARPU picture. This could help T-Mobile's profitability, and should please Wall Street and the parents at Deutsche Telekom.  
Video Plans
Binge On is a bold move by T-Mobile. This is the third time T-Mobile is doing something that is industry-altering. The first was ending contracts and phone subsidies. The second was expanding global roaming and the aggressive North America plans.    
Binge On is unique enough that it could be a distinct reason subscribers to switch to or choose T-Mobile. As a pure play wireless carrier, without the heft and assets of AT&T and Verizon, T-Mobile realizes that its video strategy is not going to revolve around doing unique content deals a la Verizon's Go90, or a "TV Everywhere" strategy a la AT&T-DTV. Combining the aggressive data pricing with the free video services is pretty powerful.
The big question is, how is T-Mobile able to pull this off without killing the network? The carrier will get a lot --- a lot  --- of questions on this. T-Mobile says it has done a lot of work with adaptive bit rate coding so that video can be carried more efficiently. We need more details on how it is doing this, and what sort of efficiencies are being gained. I am also betting that T-Mobile is still depending on subscribers defaulting to Wi-Fi when they are in the home or office and in other situations where Wi-Fi is free and the connection good. This is because 480p is fine for video on smartphones, but not so hot on phablets, tablets, and laptops. So, subscribers might still actively choose Wi-Fi if they want high quality video streams on larger screens, and will put a natural limit on how much video the cellular network will handle. Notice that T-Mobile indicated in its release that Binge On can be toggled on and off.
Additionally, video consumption on smartphones is if the shorter-form, "snack" variety. Binge watching Game of Thrones will still mainly be on TVs, tablets or laptops.
The other question that is raised here, is whether zero-rating video services is a violation of network neutrality rules. I am in the 'no' camp on this one. First, T-Mobile has been doing this with music services for over year, and has not been called on it, yet, by the regulators. If Music Freedom isn't a violation of NN, than Binge On isn't either. Second, T-Mobile is not providing preferential treatment on its network to any of these services. They are just choosing not to charge for the usage. How is this any different than Verizon offering exclusive NFL content to its subscribers, Comcast bundling in HBO as part of its plans, or AT&T extending some exclusive content through its DirecTV relationships to mobile devices? If Binge On is challenged on the basis of network neutrality, we will be wading into a pretty explosive minefield where all sorts of other "content deals" will be tested.
Overall, this is a powerful announcement. I believe the other operators will have to follow suit with some additional data offers or promotions. And video is going to start becoming another battleground. Who has the 'best network' for video; what quality is acceptable on different form factors; and what sorts of pricing, business model, and technology innovations are possible in an industry that has, until now, essentially discouraged video usage over the cellular network? 

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