T-Mobile Uncarrier 4.0 Plan: How Can John Legere's Company Afford To Cover Early Termination Fees?

T-Mobile US Inc. (NYSE:TMUS) CEO John Legere made waves at the 2014 International Consumer Electronics Show by getting kicked out of an AT&T after-party and by announcing that T-Mobile will offer a new plan that will give customers as much as $650 worth of incentives to leave their current mobile provider early.

T-Mobile added about 4.4 million new customers in 2013, with 1.6 million new customers in the fourth quarter alone. If Internet buzz about T-Mobile’s new “Uncarrier 4.0” is any indication, it could soon be adding at least that many more.

Even though T-Mobile is a fairly big company, how can it possibly afford to pay that many early termination fees (ETFs)?

Braxton Carter, the chief financial officer at T-Mobile, explained to CNET that T-Mobile won’t be hit as hard as quick napkin math may suggest. The Uncarrier 4.0 plan is aimed at the long term, and T-Mobile is confident that it can turn this initial loss into profit for each customer.

First of all, the majority of customers are well into their current mobile contracts, so ETFs won’t be at the maximum. Carter estimated that the plan will probably cost T-Mobile an average of $150 per line.

The Uncarrier plan also requires customers to trade in their old phones and purchase a new one from T-Mobile. T-Mobile plans to refurbish and resell these phones to generate additional revenue.

T-Mobile also knows that it can’t compete with the bigger carriers when it comes to advertising budgets, so it's relying on social media campaigns and stunts like the one Legere pulled at the CES party.

T-Mobile shares temporarily stopped trading after the surprise announcement at CES, and closed down 0.22 cents Thursday. The company will release its full earnings report Feb. 25 with details about the impact of its new plans.

Do you think Uncarrier 4.0 will work for T-Mobile? Let us know in the comments.