By Sinead Carew
NEW YORK Jan 3 AT&T Inc on Friday offered
customers of No.4 U.S. mobile provider T-Mobile U.S. Inc
a $200 credit to switch to its service, firing the
first volley this year in what may become a price war that
benefits consumers but plays havoc with profits across the
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 Jan. 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
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.
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 Jan. 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.