Two Things That Could Push T-Mobile’s Average Revenue Per User Higher

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Two Things That Could Push T-Mobile’s Average Revenue Per User Higher

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For more than a year, T-Mobile’s average revenue per user (ARPU) has been on the decline.

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The carrier’s ARPU was $50.48 in the first quarter of 2014, but in the first six months of 2015 it fell to $47.33. Source: T-Mobile.

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The drop has come, in part, because T-Mobile’s offered lots of great deals to bring in new customers.

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And it’s paid off.

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The carrier has added 1 million or more customers each quarter for 10 consecutive quarters. Source: FierceWireless.

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But it’s time for T-Mobile to start earning more money from those customers.

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And there are two ways the carrier can do it.

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According to a recent investor note from analysts at Jefferies, T-Mobile is moving more customers to its tiered pricing plans, and earning more from device leases. Source: FierceWireless.

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Why does that matter?

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Previously, T-Mobile focused more on promoting its unlimited plans.

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T-Mobile and Sprint are the only two major U.S. wireless carriers that still offer unlimited plans.

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Verizon and AT&T ditched their unlimited plans years ago and moved to tiered pricing because unlimited plans are expensive for carriers to maintain.

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Eventually, users just consume more data, and the carrier is left spending more money to upgrade the network to keep up with the growing demand.

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By promoting its tiered data plans, T-Mobile can funnel the new customers into plans that are better for the carrier over the long term.

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But device leases are just as important in growing revenue as the plan prices themselves.

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T-Mobile’s JUMP! and JUMP! On Demand lease programs allow customers to regularly upgrade their devices.

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Which means customers are continually paying the carrier for their device.

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T-Mobile has had leasing options and tiered plans for a while, so why will this pay off now?

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Because the carrier’s marketing efforts are shifting away from installment plans to leases, and from unlimited plans to tiered ones.

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And if T-Mobile keeps doing this while it adds a massive amount of new subscribers, ARPU could start creeping back up.

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