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What Could T-Mobile Achieve by Challenging AT&T’s DIRECTV?

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Paying Hulu bill for defectors

T-Mobile (TMUS) is at it again as it challenges its competitors. The carrier is paying a one-year Hulu bill for customers who defect to its network from rival AT&T (T), following a special promotion that launched in December 2016.

T-Mobile pounced on the problems customers have been having with AT&T’s streaming video service, DIRECTV Now, by trying to persuade AT&T customers that they could get a better deal by switching to its network. DIRECTV Now costs $35 per month for a base plan that gives access to 100 channels.

Research firm MarketsandMarkets predicts that the market for streaming video services is predicted to grow to more than $70 billion by 2021 from ~30.3 billion in 2016, as the chart above shows.

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By casting DIRECTV Now in a negative light, T-Mobile hoped to trigger a wave of defections that could help it grow its subscriber base. As growth has become difficult in the US (SPY) wireless carrier market, players are using aggressive marketing techniques to persuade customers to switch from their competitors’ services.

The cost of competition

While the ongoing competition for subscribers has become the name of the game for wireless carriers, it sometimes comes at a steep cost. In the case of T-Mobile, offering Hulu for one year free of charge could cost the company nearly $100 per subscriber.

Although it’s more costly, T-Mobile seems to be betting that it can generate more value from those customers if they stick to its platform.

Is T-Mobile doing the heavy lifting for Netflix?

However, in its challenge of AT&T’s DIRECTV Now, T-Mobile could also be working in favor of Netflix (NFLX), Amazon (AMZN), Dish Network (DISH), and other subscription video providers.

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