AT&T's Stephens: T-Mobile's ETF offer didn't impact us much in Q1

AT&T Mobility (NYSE: T) was not affected that much in the first quarter by T-Mobile US' (NYSE:TMUS) offer to pay up to $650 in Early Termination Fees to customers who switched to T-Mobile, according to AT&T CFO John Stephens.

Instead, AT&T is seeing strong momentum in its Next handset upgrade program and in the shift away from the traditional U.S. model of offering a subsidized smartphone in exchange for a two-year contract, which he said is positive for AT&T and consumers.

AT&T, which early in the first quarter cut the prices of its shared data plans for families, netted 625,000 postpaid additions in the first quarter, beating many analysts' estimates. However, that figure included around 449,000 tablet activations. AT&T's postpaid churn was 1.07 percent, down sequentially and up slightly compared to 1.04 percent in the year-ago quarter. T-Mobile, in part because of the ETF offer, saw branded postpaid net additions surge to more than 1.3 million in the first quarter.

Speaking at the Jefferies Technology, Media and Telecom Conference, Stephens said he would "leave everyone to judge if that [ETF offer] had a real effect or a real impact." He said it "doesn't appear based on our results that there was much of an impact."

Stephens said T-Mobile's ETF offer, which is not a limited-time promotion, is going to be economically challenging. "It's not something that a company with a best-in-class balance sheet would jump into," he said.

T-Mobile has said the offer was recorded as a reduction in its equipment sales revenues, and had a negative impact on both its revenue and adjusted EBITDA of around $100 million in the quarter. However, T-Mobile executives have defended the economics of the offer, saying it lures high-value customers who spend more with the carrier.

Overall, despite price changes at T-Mobile, Verizon Wireless (NYSE: VZ), Sprint (NYSE: S) and other carriers in recent months, Stephens said he views the competitive environment as "more noisy than it is disruptive" in terms of pricing.

As he has in the past, Stephens touched on AT&T's Next program, which has been gaining momentum. Under the plan, customers finance the cost of their phone in monthly payments and can upgrade after a year. They also get access to discounted service pricing under AT&T's Mobile Share Value plans. AT&T said that more than 40 percent, or 2.9 million, of all smartphone gross adds and upgrades were on AT&T Next in the first quarter; without 1.1 million accelerated upgrades, the Next adoption rate was about 35 percent, up from 15 percent in the fourth quarter.

"We are very optimistic about this," Stephens said. "We think this is a very transformational strategy."

AT&T has said the Next program shifts revenue from service revenue to handset revenue, but that it doesn't affect the company's overall financial situation. "It'll have an impact on traditional statistics," Stephens said. "Economically, it's just a tradeoff."

Customers like the pricing transparency of separating the cost of devices from service, Stephens said. He said AT&T is "investing in its customers" through the plan and is seeing them be more satisfied with their service and buy larger and more expensive data buckets. AT&T said at the end of the first quarter, 46 percent of Mobile Share accounts had 10 GB or higher plans, up from 28 percent in the year-ago quarter and 27 percent in the fourth quarter of 2013.

For more:
- see this webcast
- see this CNET article

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