Tag Archives: price for life

T-Mobile and Price for Life

T-Mobile is got a lot of bad press after sending out rate increases to people who believed they had guaranteed rates for life. For a number of years, the company promoted cellular plans that were marketed as a guaranteed price for as long as the customer kept the plans. The level to which people had a guarantee is a little fuzzy since T-Mobile has famously marketed itself as the un-carrier that didn’t require contracts. But T-Mobile marketing material from previous years backs up claims that prices on some packages were intended to be for life.

In today’s world of social media, the rate increases instantly lit up the Internet. On social media, T-Mobile was widely accused of corporate greed. This is understandable since T-Mobile is highly profitable and has enjoyed a long string of steady growth, going from 74 million total customers at the beginning of 2018 to almost 120 million by the end of 2023. In 2023, T-Mobile added 5.7 million postpaid cellular customers, 282,000 prepaid cellular customers, and over 2.1 million FWA broadband customers – an overall customer growth of 7.8%. The claim of corporate greed rings true. The company goosed profits in 2023 by inexplicably laying off 5,000 people, 7% of its workforce, while at the same time spending over $11 billion over the last year to buy back its own stock – the highest amount in the industry.

T-Mobile reacted to the public furor by saying it didn’t intend to raise rates on customers that had rates for life, although it apparently had raised rates for many of them. There is already talk of a class-action suit against the company.

It seems that carriers ultimately get into trouble when they promise rates for life. CenturyLink has been embroiled in several controversies for the practice. As an example, the company had a promotion labeled as Price for Life that promised customers would never see a rate increase on broadband products as long as they stayed in good standing and followed the terms and conditions. But in 2023, CenturyLink raised the rates on customers enrolled in this plan, which led to a class action lawsuit.

In 2016, Comcast door-to-door salespeople offered residents some price-for-life packages in Salt Lake City during a promotion that was done in anticipation of Google Fiber coming to the market. Customers were offered an attractive triple play bundle at $120 per month that included broadband, cable TV, and a telephone line. The Comcast doorknockers promised customers a lifetime price backed up in writing that their price would be good as long as the customer kept the plan. Customers were assured at each step of the process by Comcast customer service reps that they were buying a lifeline plan and that rates would never be increased.

However, in 2018, Comcast corporate folks raised the rates. A class action lawsuit alleged that as many as 20% of the 200,000 upgrades sold during the 2016 sales campaign were sold as lifetime plans. To nobody’s surprise, Comcast customer service denied any knowledge of selling a plan for life that it had supported just two years earlier. Comcast didn’t back down from the rate increases, some of which were substantial.

In today’s world, such behavior inevitably leads to a class action lawsuit from lawyers who see easy pickings from companies that break promises made to customers. I’ve always assumed that big carriers find such lawsuits to be a nuisance, and that the settlements are far smaller than the benefit of breaking the guarantee with customers.

These example should hopefully act as a warning to smaller ISPs. It’s very easy for a marketing department to try to meet sales quotas by making promises to customers that the company might come to regret in later years. There is no question that a price for life is a sales gimmick, and there are no gimmicks that marketing departments won’t try if allowed.

But there is an argument to be made for a price for life if an ISP is disciplined enough to never raise the rates on such customers. There is a huge amount of value in a customer who sticks with a company for many years. This customer will have paid for the cost of the connection many times over and generates a huge amount of bottom-line year after year. But offering prices for life today obligates management for the next several decades to keep track of such customers and never raise their rates.

Price-for-Life

I recently noticed in the T-Mobile pricing for FWA cellular broadband that the company is claiming that the price is locked-in and will never be raised. In the pricing world, that kind of offer is referred to as a price-for-life, although T-Mobile didn’t use that term.

I’ve had clients ask me about this over the years, and I hopefully talked most of them out of the idea. This is the kind of idea that comes from marketing folks because it’s a gimmick that makes it easier to sell. But there are some long-term consequences of offering a guaranteed price forever.

There are some ugly stories of when price-for-life went sour. Back in 2016, Comcast door-to-door salespeople offered residents some price-for-life packages in Salt Lake City that were rolled out in anticipation of Google Fiber coming to the market. For example, residents were offered a triple play bundle at $120 per month that included broadband, cable TV, and a telephone line. The Comcast doorknockers promised customers a lifetime price, backed up in writing that their price would be good for as long as the customer kept the plan. Customers were assured at each step of the sales process that they were buying a lifeline plan and that rates would never be increased. For example, Comcast customer service reps on the phone repeated the assurance that the prices would be good forever.

It got ugly when the Comcast corporate folks raised rates in 2018. There was a class action lawsuit that alleged that as many as 20% of the 200,000 upgrades sold during the sales campaign were sold as lifetime plans. To nobody’s surprise, Comcast customer service denied any knowledge of selling a lifetime plan it had marketed just two years earlier. Comcast enforced the rate increase, which was substantial for some customers.

Most ISPs who market a lifetime rate would not be dumb enough to raise the rates only two years later. But there is a risk for T-Mobile to repeat the Comcast gaffe. It’s not hard to imagine five years from now that somebody at T-Mobile headquarters will be searching around for extra margin and notice this pile of underpriced customers.

It’s even more likely that T-Mobile can offer this product for life since it already knows the product won’t be around five years from now. As the company introduces future 5G features, at some point it could declare the current product to be technically obsolete and discontinue it.

That tactic would be impossible for a fiber provider, but the average customer doesn’t understand cellular networks well enough to dispute that kind of maneuver. But for my clients who have a fiber network, I can picture some households keeping a product-for-life for twenty or thirty years. I think a lot of people would sign up for a price-for-life for gigabit service.

But there are other reasons why price-for-life is a bad idea. The number one issue is inflation. We just went through a period where we saw steep inflation that would quickly eat away at the margin on a lifetime product. This is particularly true when offering a price-for-life for a product that has already been priced at introductory rates. Even if we return to a long-term inflation rate of 3% annually, the margins on a price-for-life product will drop steadily each year.

The main problem I have with the price-for-life concept is that it provides an easy path for the marketing department to make sales and earn sales bonuses today while pushing lower margins into somebody else’s lap in future years. Sales departments never heard of a sales gimmick they don’t like, and this is clearly a gimmick. A more sensible approach would be to offer a fixed price for some reasonable term, like three to five years. That’s enough to be a sales hook without killing the bottom line in future years.

My main objection to price-for-life is that it conveys a message to consumers that runs against the philosophy of most small ISPs. Most small ISPs pride themselves on offering fair rates all of the time, which makes it easy to favorably contrast themselves with the big ISPs that constantly run special pricing promotions. Once a small ISP runs a price-for-life promotion it loses that message and marketing advantage because it has created a pile of customers that year-over-year have lower rates than their neighbors – and those neighbors will notice.

As odd as it sounds, a price-for-life also creates an administrative burden on an ISP. Having a pile of customers that are different than everybody else is something that will have to be explained to every new customer service rep for decades to come. Getting everybody at an ISP to remember the nuances of the products and prices sold in the past is one more complication that makes it harder on future staff. This was one of the major issues when Charter purchased Time Warner Cable. Time Warner had hundreds of different old grandfathered price plans that confused Charter employees. Charter resolved this by killing off the old rate plans – effectively voiding old price-for-life promises.

There is one counterargument to be made in favor of price-for-life. There is value in a customer that never churns. Even if a customer delivers less margin every year by hanging on to a price-for-life product, that customer is delivering a huge accumulated return by paying for a product for a decade or two. But this argument just sounds like a justification, because an ISP likely would have made more profits over time by not locking in rates, even after considering future churn. In my opinion, the long-term downsides and complications of price-for-life outweigh this economic argument.