T-Mobile really seems to get what people hate about their wireless carriers. Contracts. Limits on trade-ins. Outrageous international roaming rates. After taking aim at the first two, the company that calls itself the “uncarrier” has now declared its intent to undermine the profits its competitors squeeze from Americans traveling abroad—a topic that reliably produces horror stories that can strike fear in the smartphone-toting jetset. On Wednesday, T-Mobile said it was getting rid of international data roaming fees altogether and offering a simple, cheap plan for international voice service.
This is part of T-Mobile’s (TMUS) ongoing bid to hoist itself back to relevance in the U.S. In each case, the company highlights an embarrassing excess of the wireless industry, then proposes a plan that will make a small group of people very happy.
Legere claimed that carriers’ profit margins on international roaming fees can be about 90 percent. Few people ever find that out firsthand. Just over one-third of Americans hold a U.S. passport, and as few as five percent of Americans travel abroad each year.
Still, this is one screaming good deal. Here’s how it works: Starting Oct. 31, T-Mobile customers with its Simple Choice plans will be able to send text messages and access data for free in about 100 countries. They can also make calls for 20¢ per minute. T-Mobile says that an AT&T (T) customer who would run up $1,500 for a mix of calls, data use, and texting in Europe would spend only $6.40 on T-Mobile. (While AT&T customers could cut that bill way, way down by signing up for temporary international plans, it would still be much more than T-Mobile’s deal.) T-Mobile is also offering discounted calling and texting from the U.S. to those countries for $10 a month.
T-Mobile is offering only slower data services for free, which will likely prevent any lonely travelers from holing up in hotel rooms and binging on YouTube. It is selling faster data plans starting at $15 a day for up to 100 megabytes.
The company loses money on this: It will sacrifice the revenue it makes from international roaming while still having to pay the carriers its customers use while traveling. But this isn’t a significant business for the company at the moment. International roaming costs made up 2.4 percent of T-Mobile’s revenue last quarter.
Trading profit for growth is an exchange T-Mobile seems pretty comfortable with—at least for now. The company said it added 1.1 million customers in its most recent quarter and is converting new users faster than anyone else in the industry. To do so, it recorded a net loss last quarter of $16 million. Its costs for customer acquisition were 37 percent higher than they were a year before.
The population that might like this the most is one T-Mobile hasn’t had much success with so far: businesses. Because many people traveling abroad are doing so for work, their international phone bills aren’t necessarily their personal concern.
Trying to drive down profit margins on international service makes sense for T-Mobile, since it does so little business internationally. It has very little to lose. AT&T— its main foil—does.