AT&T tries luring T-Mobile users with credit
AT&T Inc on Friday offered customers of No.4 US mobile provider T-Mobile US Inc a $200 credit to switch to its service, firing the first volley in what may be a price war that benefits consumers but plays havoc with profits.
AT&T, the No.2 US mobile provider, announced the promotion after months of direct marketing against it by T-Mobile, and in anticipation of a new competitive offer from its smaller rival on January 8.
The move might kick off a year of discounts from US wireless operators, who are increasingly dependent on price to compete because they all offer similar phones and any network advantages are hard to prove.
MoffettNathanson analyst Craig Moffett described AT&T's move as the "early makings of a price war" that might boost customer switching, also known as churn.
"Everybody's fighting for market share because there simply isn't an organic market share left to be had," Moffett said. "The natural upshot to any strategy that pays customers to change service is higher churn."
On top of the battle between AT&T and T-Mobile, analysts also worry that Sprint, which has been losing customers, will unveil some dramatic promotions in 2014 as its 80 per cent owner, SoftBank Corp, tries to regain ground.
T-Mobile, 67 per cent owned by Germany's Deutsche Telekom AG, has been making inroads against bigger rivals by criticizing them and selling itself as more consumer-friendly with lower prices and more flexibility.
It has already posted two quarters of subscriber growth after four years of losses as a result of the promotions, and trumping bigger rivals AT&T, Verizon Wireless and Sprint Corp in phone customer growth.
Last summer, T-Mobile forced its bigger rivals to follow its offer of early phone upgrades to customers who pay for their phones in installment plans. Then in early December, AT&T cut service fees for customers who used its version of that offer.
While analysts have said they expected Verizon Wireless and AT&T to shy away from very aggressive discounts in response to T-Mobile, Credit Suisse analyst Joseph Mastrogiovanni said Friday's move was a sign of pressure to raise the stakes.
"While the carriers try to remain rational while tweaking their plans and promotions, there is no doubt that they feel the need to get more competitive," Mastrogiovanni said in a research note.
He estimated AT&T's move could cut its earnings per share by one to two percent depending on T-Mobile's response.
Most vulnerable
AT&T is seen as the most vulnerable to T-Mobile's promotions because both companies use the same network technology, making it easier for their consumers to switch.
T-Mobile's outspoken Chief Executive, John Legere, has been building up anticipation for a new offering expected to announce at an event on January 8 at the Consumer Electronics Show in Las Vegas.
In a New Year's Day tweet, Legere listed winning over family plan customers as a major goal this year, raising speculation his company will announce a new offer for that segment at the Las Vegas event.
In order for T-Mobile to keep up its momentum, many analysts say it needs to lure entire families from rivals. AT&T has said the vast majority of its customers are attached to family plans.
Wells Fargo analyst Jennifer Fritzsche said AT&T was likely reacting to speculation that T-Mobile's January 8 offer could include a credit to customers switching from AT&T contracts that covered early contract-termination fees.
In an effort to steal T-Mobile's thunder, AT&T said that, beginning on January 3, in a limited-time offer, T-Mobile customers who switch to AT&T will receive a $200 credit per line, which includes family plan customers.
The per-line credit could be on top of another credit of up to $250 if the customer trades in their current smartphone. While it said trade-in values vary based on the model and age of the smartphone, many of the latest phones will qualify for the $250 credit.
Fritzsche said that, while AT&T's move could create fears of a looming price war, she described the offer as having more "bark than bite" and should not hurt AT&T's margins.
But independent telecommunications analyst Jeff Kagan said the news was a sign of a "real boxing match" between AT&T and T-Mobile. Customer reaction to AT&T's plan could show how sustainable T-Mobile's recent customer growth will be.
He said it is unclear yet "how happy T Mobile is making these new customers".
"That's what this AT&T plan could spell out."
Copyright @ Thomson Reuters 2014
