Due to the very high competition in the telecommunications industry, switching costs are almost non-existent. It first started with keeping your number when you switched carriers and it has gotten to carriers paying your switching fees to other carriers. With such intense competition, carriers are struggling to find ways to keep their consumers while resisting the pressure of slashing margins. Carriers are now all trying to differentiate by offering some streaming service as a part of their phone plans.
- T-Mobile ONE with Netflix at $50/line
- AT&T Unlimited with HBO
- Sprint Unlimited with Hulu
- Verizon Unlimited with go90
Offering a streaming service as a part of the plan offers payment convenience to customers while also increasing the switching costs for consumers. Because streaming services use your watch pattern to suggest content, switching to another carrier would involve opening a new streaming service account where all of your preferences will be erased. Thus, this bundling encourages customers to stay with their carrier even if they will have to forgo a temporary promotion at one of the other carriers. Through this service differentiation, carriers are likely trying to end the price war that has been occurring over the past two years. Verizon would likely draw the least benefit of their partnering as go90 is already a Verizon streaming service that has experienced limited adoption rates.
How is T-Mobile attempting to stay ahead?
Even though carriers are attempting to differentiate likely to end the price war, T-Mobile has found a way to make their service more affordable while protecting its margins. Through its Kickback program, T-Mobile offers a $10 refund at the end of the month to consumers who use less than 2 GB of data. This provides flexibility to families with different data usage patterns. Most people don’t use a lot of data. They are usually either at home or at work, two locations where they have access to WiFi. So, it’s quite easy, especially for older generations, to get that refund. Yet, students or young professionals might use more data as they stream on public transport or as they use data when they are out with friends. Instead of tying the younger generation to a 2 GB plan or wasting a 10 GB plan on the older generation, T-Mobile has found a happy medium with its Kickback program. This pricing differentiation can lead to a plan that is up to 25% cheaper than that of the competitors.
While this does help the consumer, it also helps T-Mobile. The carrier limits its costs of data infrastructure by encouraging customers to use less data. Moreover, it allows for T-Mobile to offer priority data to its customers for the first 50 GB, while the competitors only offer priority up to 22 GB of data. Ensuring more bandwidth leads to consistently fast data access which leads to happier customers which, hopefully for T-Mobile, leads to positive word-of-mouth advertising.
Would you bundle your streaming service with your phone plan? Does it provide convenience for you or is it too restricting?