T-Mobile might take aim at termination fees, pressure AT&T/Verizon's margins

|About: T-Mobile US, Inc. (TMUS)|By:, SA News Editor

Jefferies' Mike McCormack notes multiple Web sources indicate T-Mobile USA's (TMUS +1.2%) Jan. 8 "Un-Carrier 4.0" event will involve the launch of a promotion in which the carrier will offer to pay off the early termination fees of consumers switching from rivals and trading in their old phones.

One report states T-Mobile will offer up to $350 in credit to smartphones users, and $200 in credit to feature phone users.

McCormack worries T-Mobile is "opening a Pandora's box, leading to intensified competition from larger peers that have better scale and higher profitability." That's a reference to AT&T (T +0.1%) and Verizon (VZ), and perhaps to a lesser extent Sprint (S +8.3%).

In addition to potentially increasing churn at rival carriers and compelling them to respond with similar promotions, T-Mobile's move could lead rivals to offer early subsidies in an effort to keep customers in the middle of contracts from switching. AT&T and Verizon have been trying hard to reduce subsidy expenses via service plan and policy changes.

Over the last 10 months, T-Mobile has already eliminated contracts/subsidies in favor of phone installment plans, rolled out a smartphone upgrade program (leading peers to do the same), and launched cheap data roaming and international calling services.