As reported by USA Today, T-Mobile US Inc. TMUS has come under the scanner for false advertisements related to its ‘Un-carrier’ where it promises to relieve its customers of grueling device subsidy contracts and related fees.
However, T-Mobile US has dismissed the reports stating that no regulatory body has accused the company of any wrongdoing. In a later development, New York Attorney General cleared the confusion stating that the investigation is still in progress.
What’s the Fuss About?
Competition in the telecom market has been heating up in recent times with two major operators, Verizon Communications Inc. VZ and AT&T Inc. T, dominating the market far ahead of Sprint Corp. S and T-Mobile. In order to remain competitive and improve their market position, T-Mobile recently introduced its ‘Un-carrier’ plan that promises customers the chance to shed off pricey device subsidies and instead settle for a monthly device installment plan for a stipulated period. Moreover, it allows customers the option to terminate the contract and move to other carriers without any additional charges.
However, as per reports, the New York Attorney General’s office has received numerous complaints from various consumer protection groups including Consumer Federation of California and ‘Change to Win’, who have alleged that T-Mobile’s new equipment installation plan is deceptive and locks the customer in a two-year contract, which one can only terminate after the payment of a hefty fee. This clearly goes against the promise made in the company’s advertisement.
We expect investor focus to remain on the proceedings of the investigation, going forward, to determine whether the charges brought against T-Mobile are at all valid.
The Bottom Line
Due to the widespread popularity and rising demand of smartphones and mobile devices, wireless carriers see leasing plans as potential growth opportunities. T-Mobile took the lead by scrapping its traditional subsidy plan and replacing it with the Un-carrier plan. The strategy had so far clicked in favor of T-Mobile US, elevating it to the position of third largest wireless carrier in the U.S in terms of subscriber count, ahead of Sprint.
While T-Mobile has challenged itself to outpace Verizon and AT&T in the coming years, consumer allegations such as the latest one can impair its prospects in the long term.
T-Mobile currently carries a Zacks Rank #3 (Hold).
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