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T-Mobile's Deal With Facebook Is an Important Test


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Subscribers to T-Mobile's GoSmart prepaid wireless service got an early Christmas present this week. Every subscriber will get unlimited access to Facebook regardless of their data plan (or lack thereof). Facebook has made similar deals with carriers around the world, but this is the first in the U.S.

GoSmart has a tiny subscriber base -- "hundreds of thousands of subscribers" according to T-Mobile's VP of Partner Brands -- so the impact won't be huge for either company. Yet, this is a simple way for T-Mobile and Facebook to test the waters in the U.S. and see if such a deal can be as successful as those made abroad.

Facebook wants to connect everyone
In Facebook's second-quarter conference call, Mark Zuckerberg outlined three main goals for the company going forward. The first was to connect everyone. Google shares this goal with Facebook, and the advertising rivals might end up helping each other.

With a growing number of users accessing Facebook through mobile devices, the company wants to ensure that anyone can access its services. In February, Facebook announced partnerships with 18 carriers in 14 different countries to allow subscribers free or discounted access to Facebook.

The best part about these deals for Facebook is that it isn't footing the bill for data usage.It has helped out with marketing and promotion, but considering its access to one of the largest advertising platforms is all but free, that isn't too much of a burden for the company.

Although the terms of the arrangement with GoSmart were not disclosed, it's likely Facebook has come to similar terms. Considering Facebook's saturation level in the U.S. and the average price per ad in the country, T-Mobile is getting just as good of a deal as Facebook.

Google, on the other hand, is unlikely to make similar deals with carriers. The company's service, by its very nature, sends people to other parts of the web. Instead, Google has taken to setting up free WiFi networks all over the world, including plans for a potential network of balloons or blimps over Sub-Saharan Africa and Southeast Asia, which could connect an additional 1 billion people.

Google can benefit from Facebook's deals with carriers, however, as more people sign up for data plans once they get a taste of the mobile web. This is what T-Mobile and GoSmart are banking on.

GoSmart can increase ARPU
T-Mobile launched GoSmart in February, and the prepaid carrier has since attracted a small niche of subscribers paying $25 to $45 a month for wireless service. More specifically, users can pay $30 for unlimited talk and text, $5 more to add unlimited 2G data, or pay $45 for unlimited talk, text, and 3G data.

The deal with Facebook will allow GoSmart subscribers access to Facebook services using the 2G network. Anything that takes users outside of the Facebook network requires a data plan. T-Mobile is betting that enough users will find value in paying another $5 each month to get the full experience of shared content on Facebook.

Moreover, anyone who's tried to play videos or load pictures using 2G speeds knows that it requires a certain amount of patience. Some subscribers may be compelled to upgrade to 3G after getting to experience the benefits of mobile web access.

Although T-Mobile doesn't release independent financial data for all of its MVNOs like GoSmart, its average revenue per prepaid subscriber fell $0.26 last quarter to $35.71.That includes those that it acquired through the purchase of MetroPCS, which reported ARPU of $40.96 with 9 million subscribers at the end of the first quarter.Clearly, other parts of T-Mobile's prepaid subscriber base are paying much less, as MetroPCS accounts for 60% of T-Mobile's prepaid subscribers.

Facebook for everyone
As I mentioned previously, GoSmart is a tiny part of T-Mobile, so no one should expect a meaningful upswing in ARPU for prepaid subscribers at T-Mobile. If the company sees success with GoSmart, however, it could extend the program to its other prepaid brands.

At the very least, T-Mobile should be able to increase its subscribers and reduce churn on the MVNO due to its differentiation and advertising help from Facebook.

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The article T-Mobile's Deal With Facebook Is an Important Test originally appeared on Fool.com.

Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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