T-Mobile U.S. Drops a Bomb on the Wireless Industry With Deal for Free Netflix

As the wireless world awaits aggressive promotions centered around the next iPhone, T-Mobile boss John Legere grabs the spotlight with a Netflix deal.

Author:: Chris Nolter
Publish date:: Sep 6, 2017 4:10 PM EDT

Kicking off what should be a few months of aggressive promotions from wireless carriers, T-Mobile USA (TMUS) - Get Report said Wednesday that it will offer free Netflix (NFLX) - Get Report to all family plan holders.

The Netflix deal starts Tuesday, Sept. 12 -- the same day that Apple Inc. (AAPL) - Get Report introduces the tenth-anniversary edition of the iPhone. The arrival of the much-hyped iPhone 8 should start a round of promotions from the wireless carriers with competition continuing through the holidays.

T-Mobile USA CEO John Legere took a shot at AT&T Inc. (T) - Get Report and Verizon Communications Inc. (VZ) - Get Report in a statement announcing the promo. "The future of mobile entertainment is not about bolting a satellite dish to the side of your house or resuscitating faded 90s dot-coms," Legere said, referring to AT&T's purchase of DirecTV and Verizon's acquisitions of AOL and Yahoo!

Shares of T-Mobile USA Inc. were up slightly at $63.74 on Wednesday, while Netflix Inc. gained nearly 2.5% to $178.78.

Netflix will come free to T-Mobile U.S. account holders with at least two phones, which would cost $120 per month. A family plan with four lines costs $160 per month. Streaming Netflix videos in standard definition won't result in additional costs to customers on these plans.

All four of the wireless carriers are now offering unlimited data plans. The iPhone 8 will be a valuable tool for promotions, although Barclays analyst Amir Rozwadowski wrote Wednesday that the wireless providers want to avoid "uneconomic and easily replicable" offers.

"An exclusive deal with Netflix seems to provide a differentiated and difficult to replicate offering," Rozwadowski added. "Longer term, the offer serves as an additional data point supporting our broader industry view that video is increasingly being viewed as a tool to entice and retain access customers."

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Pay-TV and wireless are converging. Comcast Corp. (CMCSA) - Get Report and Charter Communications Inc. (CHTR) - Get Report are reselling Verizon Communications Inc.'s (VZ) - Get Report wireless service. AT&T has purchased satellite television provider DirecTV and is working to close its purchase of Time Warner Communications Inc. (TWX) , and has focused its promotional activities that bundle streaming video with mobile service.

One question is whether a mega-merger of a cable operator and a wireless carrier will materialize. T-Mobile USA would be an attractive partner for cable, or for Dish Network Corp. (DISH) - Get Report . The wireless carrier has also had merger talks with Sprint Corp. (S) - Get Report .

By teaming up with Netflix, BTIG LLC analyst Walt Piecyk suggested that T-Mobile adds video to its bundle without all of the baggage of a cable or satellite TV network.

"T-Mobile is in an enviable position for the future communications landscape by building the bundle from scratch, without having to sustain legacy businesses that are in structural decline," Piecyk wrote. "Netflix is in a similarly enviable position, which makes them obvious and high profile partners."

Even if T-Mobile USA is not part of a major deal with cable operators or another wireless carrier, the deal with Netflix improves its competitive position.

"The communications landscape is changing and T-Mobile is not sitting still waiting for a merger that may or may not materialize," Piecyk wrote.