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T-Mobile Reportedly To Limit Abusers, Explains Rejecting Illiad Bid

NEW YORK ( TheStreet) -- T-Mobile (TMUS - Get Report) says a number of customers are abusing their unlimited LTE data plans and the company is making changes to halt the practice. According to a leaked internal document, T-Mobile will begin capping subscribers who download way too much information over the 4G wireless network.

T-Mobile stresses it has no plans to place limits on all of its unlimited high-speed data customers - just the data hogs:

“A very small number of our customers are misusing their Simple Choice Unlimited data service in violation of their rate plan and terms and conditions by bypassing the default tethering feature or engaging in peer-to-peer (P2P) file-sharing.”

The fourth place U.S. cellular provider plans to give the abusers fair warning. The carrier says it will be reach out to the offending customers “to educate them," but if the misuse continues, "they could have their data speeds reduced for the remainder of their (monthly) billing cycle."

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By implementing the new policy, T-Mobile joins competitors Verizon (VZ) and AT&T (T) in reigning-in large data abusers by cutting back on download speeds after they reach a monthly limit. Analyst Paul DeSa of Sanford Bernstein & Company thinks T-Mobile's move may translate into a little bad publicity but, in reality, doesn't affect that many of T-Mobile customers. "Others have done it already and Sprint (S) will have to do it too. Unlimited offerings are just not sustainable," he said in a phone interview.

T-Mobile shares were off 0.38% to $29.03 in midday trading in New York.

No actual data limit threshold was disclosed, and the company will judge abusers on a case-by-case basis. Those affected by the new policy will be subscribers to the company’s $80 per month Simple choice plan, or those grandfathered into the older $70 per month unlimited plan. T-Mobile already throttles its other customers subscribed to data plans with lower monthly limits.

T-Mobile announced second quarter earnings, last month, with the company reporting it has added 1.5 million new customers which translated into a net income of $391 million, or 49 cents per share. In the second quarter, T-Mobile had announced a loss of $16 million, or 2 cents per share. Quarterly revenue rose 15.4 percent to $7.2 billion, beating estimates of $7 billion.

T-Mobile has recently been the target of a pair of highly publicized takeover offers. It rejected the long-rumored buyout bid from Sprint and its owner Japan's SoftBank Corp. Sprint’s CEO Dan Hesse resigned after the deal was rejected.

T-Mobile’s parent company, Detutsche Telekom also turned down a $15 billion offer from Paris-based Illiad for nearly 57% of the T-Mobile US business. Earlier this week, T-Mobile’s Chief Financial Officer, Braxton Carterf called Illiad’s bid “very inadequate” but expects we might soon hear of additional offers from its French suitor. Reuters, quoting a person close to Iliad, reported Illiad was weighing whether to improve its $33 per share bid for T-Mobile US.

Deutsche Telekom's Chief Executive Tim Hoettges added "We have always said that we would be open to offers for T-Mobile US which would improve its position and that of its shareholders. At the moment, we don't have an offer which fits those criteria."

Craig Moffett of MoffettNathanson Research thinks nothing much will come of Illiad’s bid. In a phone interview, Moffett said it's more likely credible offers will come from either Dish Network (DISH) and/or Carlos Slim’s America Movil (AMX) owner of U.S. prepaid cellular provider Tracfone Wireless.

-- Written by Gary Krakow in New York.

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Gary Krakow is TheStreet's Senior Technology Correspondent.

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