Why is T-Mobile So Expensive in 2024?

Have you been thinking about switching to T-Mobile, but sticker shock is making you think twice? As a wireless industry analyst, I‘ve gotten many questions lately from consumers wondering why T-Mobile‘s plans come with higher price tags.

T-Mobile built its reputation on offering value, but recent moves by the "Un-carrier" have contributed to rising plan costs. Based on my research into T-Mobile‘s business strategy, here are the 13 main reasons you can expect to pay more when you switch to magenta:

1. Racing to Lead 5G

As of January 2023, T-Mobile‘s 5G network reached 315 million people – more than double its competitors. But rapidly building 5G comes at a steep cost:

• T-Mobile spent $11.5 billion in 2022 on 5G network expansion, its largest investment ever.
• The carrier added 52,000 new 5G cell sites, tapping its $9.3 billion in C-Band spectrum.
• To access key mid-band spectrum, T-Mobile spent $26 billion acquiring Sprint.

Delivering broad 5G coverage requires massive capital investment, costs passed onto consumers.

2. Inflated Promotional Offers

Switching carriers often comes with promos like free phones or lines. But the cost of those new customer perks ultimately inflates plan pricing:

• In Q3 2022, T-Mobile spent $900 million on promotional offers.
• Many "free line" deals require keeping the line for 2+ years to receive bill credits.
• Device promos add $10-$15 per month in financing fees to plans.

While nice short term, these promotions tack on long-term costs.

3. Bundling Entertainment Perks

Several T-Mobile plans now include streaming services like:

• Netflix Basic ($9.99/month value)
• Apple TV+ ($4.99/month)
• Paramount+ ($4.99/month)

Bundling these services draws in customers but increases the overall plan rates.

Average Monthly Cost of Bundled Services:

4. Charging a Premium for Unlimited Data

T-Mobile‘s Magenta Max plan offers premium unlimited data with 40-50% faster speeds than standard Magenta. These perks let T-Mobile charge a premium:

• Magenta (100GB high-speed): $47/line
• Magenta Max (Unlimited high-speed): $85/line

Delivering unlimited priority data while maintaining network quality costs more.

5. Marketing and Advertising Spend

In 2022, T-Mobile spent $7 billion on sales, marketing, and promotions – its highest ever. These customer acquisition costs ultimately raise plan prices.

• TV ads account for ~33% of T-Mobile‘s ad budget.
• The carrier relies heavily on celebrity endorsements (Miley Cyrus, John Travolta).
• In Q3 2022, T-Mobile added 1.7 million new postpaid subscribers.

More marketing spend helps attract subscribers but also raises costs.

6. Expanding Physical Retail

Despite trending toward e-commerce, T-Mobile is expanding its retail footprint and staff:

• It aims to add 1,500 new retail stores by 2025.
• T-Mobile now operates over 3,000 retail locations.
• Real estate and staffing new stores adds billions in overhead.

Bigger retail presence improves customer access but increases operating costs.

7. Bumping Up Employee Compensation

To attract and retain talent, T-Mobile has increased compensation packages:

• Retail workers got a $20,000 raise in 2021 amid labor shortages.
• Executive pay also rose, with CEO Mike Sievert earning $16.6 million in 2021.
• Boosting compensation company-wide adds personnel costs.

While positive for employees, higher pay scales raise T-Mobile‘s expenses.

8. Postpaid Phone Financing

T-Mobile encourages financing new devices through monthly bill credits. But this also hides device costs in plan rates.

• Over 90% of customers opt for monthly payments vs. one-time purchase.
• New iPhone 14 Pro: $1000 upfront or $41.67/month for 24 months.
• Lower upfront cost but pays more in long run.

Easy financing makes devices seem more affordable but increases monthly fees.

9. Charging for Extra Features and Add-Ons

T-Mobile‘s advertised rates reflect base plans, but many pick add-ons that raise the price:

• HD Video Streaming: $15/month
• International Data Roaming: $5/day
• Mobile Hotspot Data: $15/5GB

Small fees for extra features or data add up quickly. Avoiding add-ons prevents "bill shock".

10. Merger with Sprint Raised Prices

Acquiring Sprint in 2020 gave T-Mobile scale but also reduced competition that helped control pricing.

• Merger created a wireless duopoly vs. quadopoly.
• Less competition typically leads to higher prices for consumers.
• Caused lowest cost plans like Metro by T-Mobile to increase.

With less discount carriers, T-Mobile faces less pressure to keep prices low.

11. Inflationary Pressure Across Industries

Like many sectors, wireless carriers contend with economy-wide inflation:

• Networks rely heavily on energy costs, up over 20% since 2020.
• Labor costs are up nearly 20% amid worker shortages.
• Interest rate hikes drive up financing costs.

Rising input costs give T-Mobile cover to bump up rates.

12. Ongoing Investment in Network Quality

Beyond 5G, T-Mobile continues building its 4G LTE and fiber infrastructure:

• Spent $1.3 billion in 2022 expanding mid-band LTE spectrum.
• Adding thousands of miles of fiber assets to improve capacity.
• Network investment never stops as data demands grow.

Continuous upgrades are necessary but drive up operating budgets.

13. Shareholder Pressure for Profit Growth

As a public company, T-Mobile faces pressure from shareholders to boost profits every quarter:

• Trading at 21x earnings, investors expect strong growth.
• Between 2020-2022, quarterly revenue rose 25% from $11 billion to $15 billion.
• Achieving these targets necessitates gradually raising plan rates.

Meeting Wall Street‘s constant growth demands requires ever-increasing revenues.

The reasons above underscore why you‘ll pay a premium for the network, perks, and service T-Mobile offers compared to low-cost carriers. But you may be able to get a better deal:

• Consider T-Mobile MVNOs (Mint, Google Fi) that use its network at lower prices.
• Switch to no-contract plans like Metro by T-Mobile for more flexibility.
• Take advantage of limited-time promos – but watch for caveats.
• Use cashback apps to earn money on your cell bill.

With the right moves, you can still unlock some savings at the "Un-carrier".