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 AT&T, the No.2 U.S. mobile provider, announced the promotion after
months of direct marketing against it by T-Mobile, and in
anticipation of a new offer from its smaller rival on January 8.
The news depressed shares in T-Mobile and Sprint Corp — which have
been rallying in recent weeks on optimism about potential
consolidation — and to a lesser extent industry leader Verizon
Communications.
The move could kick off a year of discounts from U.S. wireless
operators, who are increasingly dependent on price to compete
because they all offer similar phones and any network advantages are
hard to prove, according to analysts.
MoffettNathanson analyst Craig Moffett described AT&T's move as the
"early makings of a price war" that would boost customer switching,
also known as churn, and in turn hurt profits.
"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."
Analysts also worry that No. 3 U.S. rival Sprint, which has been
losing customers for years, will unveil dramatic promotions in 2014
as its new 80 percent owner, SoftBank Corp, is expected to push
Sprint to regain lost ground.
TOOTH AND NAIL
AT&T's move may also bolster U.S. regulators' conviction that the
industry is healthier with four national rivals, making it difficult
for SoftBank to realize its reported ambitions to merge Sprint with
T-Mobile, analysts said.
After failing to sell itself to AT&T in 2011 because of regulatory
opposition, T-Mobile has been fighting tooth and nail with its
one-time suitor. It halted four years of subscriber losses by
criticizing its rivals and selling itself as more consumer-friendly
with lower prices and more flexibility.
T-Mobile, which is 67 percent owned by Germany's Deutsche Telekom
AG, posted two quarters of subscriber growth as a result of the
promotions, and trumped rivals AT&T, Verizon Wireless and Sprint in
phone customer growth.
In early December, AT&T cut service fees for customers who pay for
their phones in installments due to pressure from T-Mobile, the
first operator to offer this option.
AT&T is seen as the most vulnerable to T-Mobile's attacks because
both companies use the same network technology, making it easier for
their consumers to switch.
While analysts had expected Verizon Wireless and AT&T to shy away
from any aggressive responses to T-Mobile, Credit Suisse analyst
Joseph Mastrogiovanni said in a research note they now appeared to
be under more pressure to discount.
"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. He estimated AT&T's
latest move could cut its earnings per share by 1 to 2 percent
depending on T-Mobile's response.
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Citi analyst Michael Rollins said T-Mobile's next move could also
prompt responses from Verizon Wireless as well as Sprint.
T-Mobile's outspoken Chief Executive, John Legere, has been building
up anticipation for a new offer his company will unveil at the
Consumer Electronics Show in Las Vegas next week.
In a New Year's Day tweet, he listed winning over family plan
customers as a major goal for 2014, prompting speculation that he
will announce discounts aimed at families at CES.
Many analysts say that to maintain its momentum it is crucial for
T-Mobile to lure entire families from AT&T, which says the vast
majority of its customers are in family plans.
Legere teased AT&T CEO Randall Stephenson after Friday's news,
questioning whether he thinks AT&T can really buy back customers who
had moved to T-Mobile.
He also described the offer as a "desperate move by AT&T on the
heels of what must have been a terrible Q4" and said, "I'm flattered
that we have made them so uncomfortable!
Analysts also speculated that T-Mobile's January offer may involve
issuing credits covering early contract-termination fees for
customers switching from AT&T contracts .
This may have led AT&T make the $200 offer per line for a
limited-time, to T-Mobile customers who switch to AT&T, starting on
January 3. The per-line credit would be on top of another credit of
up to $250 for customers who trade in their smartphone. While
trade-in values vary based on the phones traded, AT&T said that many
of the latest phones will qualify for the $250 credit.
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.
"That's what this AT&T plan could spell out," he said.
On the New York Stock Exchange T-Mobile shares closed off $1.09, or
3 percent, at $32.28 and Sprint shares fell 4 percent to $9.94.
Verizon shares fell 1.2 percent to $48.42 and AT&T shares finished
down 15 cents at $34.80.
(Reporting by Sinead Carew; editing by
Sophie Hares, Andre Grenon and Jonathan Oatis)
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