Editor’s note: Leasing programs and lower average revenue per customer are causing revenue growth to decelerate for T-Mobile, says Technology Business Research analyst Steve Vachon after reviewing T-Mobile’s earnings report earlier this week.

HAMPTON, N.H. – Despite significantly outperforming competitors in postpaid phone net additions, T-Mobile’s revenue rose only 1.1% year-to-year in 4Q15. T-Mobile previously generated double-digit revenue growth most quarters since initiating its Un-carrier campaign in 2013. Revenue growth has been decelerating recently for T-Mobile as a result of lower ARPU stemming from Simple Choice promotions and equipment revenue declining significantly due to the popularity of JUMP! On Demand leasing programs.

TBR anticipates T-Mobile will continue to lead the U.S. postpaid phone market in 2016 due to the success of its Un-carrier offerings, but the carrier will need to invest in new areas to sustain revenue growth over the next five years. Verizon and AT&T have an advantage over T-Mobile as the companies have greater capital to invest in new areas such as Internet of Things (IoT), video and mobile advertising that will enable the carriers to sustain long-term revenue growth in light of the saturating smartphone market and ongoing postpaid pricing war.

T-Mobile’s relatively low cash flow also hinders the company from investing in next-generation technologies such as network functions virtualization, software-defined networking and 5G that would help the carrier improve network efficiency and attract customers.

TBR believes T-Mobile will become the target of M&As and partnerships over the next several years, which would help the carrier strengthen its financial position and tap into new growth areas. Dish Network, Comcast, Liberty Media, Google and Altice are potential suitors as the companies’ assets would complement T-Mobile’s portfolio and help the operator address its growth challenges.

To improve revenue in the short term, T-Mobile plans to unveil an IoT platform in 2016, potentially including a smart home or connected car service, which the company claims will “disrupt” the market. However, AT&T’s and Verizon’s strong presence in the IoT space may hinder T-Mobile from gaining momentum in the segment. T-Mobile will also offer new Un-carrier incentives in 2016 that will sustain service revenue growth and high postpaid net additions.

T-Mobile is capitalizing on Binge On to combat AT&T’s and Verizon’s video offerings

T-Mobile gained 917,000 postpaid phone net additions in 4Q15, over double the amount of postpaid phone net additions compared to the carrier’s closest competitor, Verizon. T-Mobile’s subscriber growth was spurred by the launch of Binge On in November, which allows customers to view popular streaming services without consuming data from their Simple Choice tiers. T-Mobile continues to add partners to Binge On, such as Amazon Video, and the platform now includes 42 streaming services.

Though T-Mobile is limiting its potential to increase data revenue by offering Binge On, TBR believes the service is a strong incentive for the operator to attract subscribers without warranting further price discounts and weakening ARPU. Binge On will help T-Mobile retain customers from AT&T’s recent unlimited wireless data plans offered to DirecTV and U-verse TV customers as well as Verizon’s go90 mobile video service, which is now providing data-free streaming to the carrier’s customers.

JUMP! On Demand is attracting cost-conscious customers but is causing sharp equipment revenue declines

T-Mobile’s equipment revenue declined 29.5% year-to-year in 4Q15, primarily due to the carrier’s JUMP! On Demand leasing program that launched in June. JUMP! On Demand is causing equipment revenue to decrease as the plans generate revenue on a monthly basis compared to equipment installments plans (EIPs) that generate revenue at the point of sale. The take-rate of leasing programs is increasing as they typically provide a lower monthly billing rate than traditional EIPs and provide options for customers to upgrade to the latest flagship devices, such as the iPhone, each year. TBR believes JUMP! On Demand will gain greater traction in 2016 as AT&T and Verizon recently eliminated contract plans but are only offering EIPs and not leasing plans, providing T-Mobile prime opportunity to attract cost-conscious customers.

(C) TBR