Analysts: AT&T's cut in Mobile Share family pricing targets T-Mobile, Verizon

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AT&T Mobility's (NYSE:T) announcement over the weekend that it is cutting prices on its higher-end Mobile Share shared data plans is both a way to retain current customers and respond to aggression by T-Mobile US (NYSE:TMUS), according to analysts. AT&T's new prices, which went into effect Sunday, could also target rival Verizon Wireless (NYSE:VZ) and its family plan customers, analysts said.

AT&T said customers who choose a Mobile Share plan with 10 GB of data per month or higher will see a range of savings, depending upon their existing plans. For example, customers who sign up for four smartphones with unlimited voice, texting and 10 GB of data will now pay $160 per month, or $40 less than AT&T's old plan at that level.

As CNET notes, the cut in pricing is coming from the fees that AT&T charges customers for each line of service. In the past, AT&T customers would pay $100 for the 10 GB plan, with postpaid customers paying $40 per month per line and off-contract customers paying $25 per month per month per line. Now, AT&T is cutting the cost to add a new line to $15.

Importantly, the new pricing only applies to customers who pay for their phone in full up front, bring their own phone or use AT&T's Next handset upgrade plan.

AT&T specifically called out Verizon in its press release on the pricing, and said that Verizon's comparable plan of 10 GB shared among four smartphone users is $100 more per month at $260. However, AT&T said its new pricing is not in response to a single competitor. "We think it will be attractive to customers from other companies," an AT&T representative told CNET.

Also, through March 31, AT&T is giving $100 in credit to new and existing customers who open a new line of service. 

AT&T's new plans come after T-Mobile announced it will pay up to $650 in early termination fees (ETFs) for customers that want to switch to T-Mobile from other carriers and trade in their devices.

"With all the effort currently going into getting customers to switch, AT&T's moves seem to be geared towards keeping existing customers first and foremost," Jackdaw Research analyst Jan Dawson wrote. "This is clearly a response to the aggressive price moves from competitors, especially T-Mobile, over the last several months. But they also reinforce the fundamental difference in strategy between AT&T and Verizon Wireless on the one hand and Sprint (NYSE:S) and T-Mobile on the other. AT&T has switched entirely to metered data, and as such the best way to grow revenues over time is to increase the amount of data people include in their plans."

Dawson also noted that the plans are part of AT&T's push to get customers to pay for their devices explicitly. "Lowering service plans is a great way to incentivize customers to switch to its Next program, under which customers pay for phones in installments over time, rather than having the cost of the device recouped through service fees," he wrote. "As such, both these moves can be seen as AT&T positioning for the future: shifting to data plans as the focus for growth, and breaking out the cost of devices so that service fees truly reflect the cost of service. Most customers will save significantly on their service plans by switching, but since they will have to start paying for their devices separately, those with expensive devices may end up paying more over time, while those who prefer inexpensive devices will be able to save money overall."

Earlier this month on AT&T's fourth-quarter earnings conference call, AT&T CEO Randall Stephenson alluded to this trend. "Our customers are demonstrating an interest, a desire even, to put more of their money into the handset in exchange for lower monthly pricing," he said.

Some analysts see AT&T's plans as a response to T-Mobile, but said they could also sting Verizon. "While much of AT&T's recent pricing activity has been focused on competing with T-Mobile for lower-end subscribers, we believe that the new pricing also targets Verizon's prized family plan customers," Jefferies analysts Mike McCormack, Scott Goldman and Tudor Mustata wrote in a research note. "AT&T's new pricing over 24 months is $860 cheaper than Verizon's for a comparable 4 smartphone family plan when accounting for the cost of 4 iPhones. It is possible, but unlikely, that Verizon will respond with an update to its EDGE EIP plan that includes service price discounts."

Meanwhile, New Street Research analyst Jonathan Chaplin wrote in a research note that the price cut could lower AT&T's wireless EBITDA by 1-2 percent, and that AT&T would have to boost gross subscriber additions by anywhere from 500,000 to 1.3 million customers or cut churn 0.06-0.15 percent to neutralize the price cut.

"This price cut along with the recent $100 credit suggests that: 1) momentum at TMUS continues to build; 2) AT&T is willing to sacrifice growth and margin to fight it; 3) while Verizon may be insulated from TMUS' incursions, they aren't insulated from price cuts at AT&T; 4) if AT&T is suffering at the hands of TMUS, we can only imagine what is going on at Sprint," he wrote.  "Bottom line: the market still imagines that the carriers will collectively grow revenues at a mid-single-digit rate and expand margins over the next five years; we don't think expectations reflect the reality of rising competition."

For more:
- see this release
- see this CNET article
- see this The Verge article
- see this NYT article
- see this WSJ article (sub. req.)

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