The fourth-largest mobile carrier in the U.S. has made a unique entry into digital music. T-Mobile announced Wednesday it will remove all data charges from streaming music on services such as Pandora and Spotify over its 4G LTE network.
Named Music Freedom, the initiative will begin with a group of seven services that also includes iTunes Radio, iHeartMusic, Slacker, Rhapsody and Milk Music, Samsung's new Internet radio service. Additional music services, including the upcoming Beatport music app from SFX, will be added to the list over time.
"Music for our customers is a huge, huge passion point," Mike Katz, VP of Marketing, tells Billboard. But T-Mobile has found that streaming music is a pain point for its customers. Although the carrier has seen growth in music streaming of over 600% in the last three years, according to Katz, a poll by CivicScience found that 37% of mobile users would avoid streaming due to data restrictions and charges.
T-Mobile already offers unlimited data in its mobile plans but throttles data if a customer reaches the plan's cap. The carrier offers three plans, ranging from 4G LTE caps of ranging from 500MB per month 5GB per month, that would benefit from unlimited, high-speed data to enjoy streaming music services. Its most expensive plan offers unlimited 4G LTE data.
Customers in big cities will get the most out of Music Freedom. Technology consultant Chetan Sharma tells Billboard that T-Mobile's 4G LTE network competes favorably in major markets. Outside of major areas data speed "is a problem because (T-Mobile) didn't have low band spectrum." However, Sharma believes T-Mobile's recent acquisition of wireless spectrum from Verizon should improve the situation outside of major markets.
Music streaming services stand to benefit from the new initiative. Mobile is a key driver of both usage and adoption of digital music services. Pandora gets 76% of its revenue from mobile advertising while Spotify has credited its free mobile service for helping it surpass three million U.S. subscribers earlier this year.
Music Freedom marks the third digital music initiative amongst the top four mobile carriers in the U.S. Two partnerships, Beats Music with AT&T and Spotify with Sprint, give customers reduced, family-plan pricing while placing the music services in large, national advertising campaigns that would otherwise be unaffordable. Such partnerships have been widely credited by music executives with helping speed the adoption of streaming services in Europe.
But T-Mobile's approach to digital music is far from the norm. The typical mobile music tactic is a mutually beneficial partnership between a mobile carrier and a music service. The music service gets access to a large number of potential customers lured by a subsidized or reduced price -- that will eventually increase to the normal fare. In return, the mobile carrier uses the music service to attract and retain customers and drive sales of lucrative mobile data plans. "We don't believe in that model," says Katz.
Rather than subsidize a music service, T-Mobile is subsidizing the data traffic that drives usage of music services. The end result could be the same: customers save money and music streaming activity increases. "Even though carriers want you to believe streaming is free, streaming music actually isn't free because of the data charges customers accrue," says Katz.
Music Freedom is the fifth is a series of initiatives dating back to March 2013 that has shaken up the U.S. mobile market. T-Mobile has changed what people expect from mobile carriers by eliminating service contracts, allowing for more frequent phone upgrades, lowering the cost of using a phone in foreign countries and reimbursing new customers for the termination fee associated with leaving their prior mobile carrier.
The initiatives have given T-Mobile a shot in the arm. The company added 4.4 million new customers in 2013, an improvement from 203,000 the prior year, and had another 1.8 million net additions in the first quarter of 2014. The carrier is closing on Sprint but is still fourth in the U.S. Verizon leads the market with about 122 million subscribers. AT&T has 116 million, including 4.5 million acquired from in the purchase of Leap Wireless. Sprint is third with 53.5 million.
T-Mobile's competitors have felt compelled to copy some of its prior initiatives. For example, AT&T and Verizon have cut rates for family plans, and AT&T has attempted to lure T-Mobile customers with a $200 credit for switching services.
There is some question about T-Mobile's ability to continue on its current path. Sharma believes T-Mobile's gains are "completely attributable" to pricing changes that are squeezing margins. "It is unclear if this strategy can be sustainable long-term as the net adds have come with a loss of profits and Wall Street doesn't forgive that over long period of time," says Sharma.
The major players might afford to wait out T-Mobile's string of profit-squeezing initiatives. According to BTIG Research, last year Verizon and AT&T posted $34.2 billion and $25.8 billion in EBITDA, respectively, while T-Mobile earnings were just $3.4 billion. But if the other three mobile carriers follow T-Mobile's lead on music streaming data, the digital music industry could get a much-needed boost.
Here's an overview of the digital music initiatives announced by three of the four biggest U.S. mobile carriers this year:
-- AT&T and Beats Music: First 30 days free (for first-time Beats subscribers); charged directly to AT&T wireless bill; $9.99 per month for individuals and $14.99 per month for up to five users.
-- Sprint and Spotify: 6 months free for Sprint "framily" months, with discounted pricing for the next 18 months; 3 free months for regular Sprint customers; charged directly to Sprint bill after trial period; Spotify bundled with HTC One Harmen/Karden edition and Harman/Karden Onyx studio speaker.
-- T-Mobile: no charge on data used for streaming on Pandora, Spotify, iTunes Radio, iHeartMusic, Slacker, Rhapsody and Milk Music. Mobile plans that would benefit from Music Freedom include 500MB ($50), 3GB ($60) and 5GB ($70) of data per month.