| NEW YORK, April 23
NEW YORK, April 23 Increasingly aggressive
discounting is taking a toll on AT&T Inc and U.S. cellular
rivals as they struggle to attract customers in a nearly
While recent price cuts by AT&T led to a surge in
first-quarter subscriber adds that beat Wall Street
expectations, average revenue per user fell, triggering a 3.2
percent share drop.
Other wireless carriers' shares also declined, with T-Mobile
US Inc, which has roiled the industry with a series of
discounts and new pricing plans, down 2.8 percent.
AT&T's result and the share fallout is the latest sign of
how U.S. cellular phone providers, once seen as companies with
strong growth potential, are having to resort to discounting in
a bid to retain or lure clients.
"We don't like AT&T and only like Verizon slightly better, "
said Michael Mullaney, chief investment officer at Fiduciary
Trust Co in Boston.
All of the four main U.S. wireless providers have
underperformed the Standard & Poor's 500 this year, with
Sprint and T-Mobile, which were lifted by merger speculation
last year, particularly weak.
"Telecom seems like it's in business just to pay its
dividends. They're not growth stories at all, they're more like
bond surrogates at this point, just making sure they have enough
cash flow to cover their dividend payments over time," said
T-Mobile and AT&T have similar networks, making it
particularly easy for them to lure each others' clients. Verizon
Communications Inc and Sprint Corp lost 1 percent
and 0.8 percent respectively.
Verizon reports its first-quarter earnings on Thursday,
followed by T-Mobile and Sprint next week.
In response to growing competition from smaller rivals such
as fourth-ranked T-Mobile, AT&T introduced a pricing plan last
July eliminating down payments for devices and instead allowing
customers to pay in installments, competing with a similar
option pioneered by smaller rival T-Mobile.
While the unbundled plan sparked growth in AT&T subscribers,
it also gave them greater flexibility to shift to cheaper
options providing unlimited talk and text and allowing for a
pool of data to be shared across multiple devices.
"The issue is that AT&T re-priced their installment base of
customers," said Kevin Smithen, a managing director at Macquarie
Securities Group in New York, which estimates that AT&T's
average revenue per user fell 2.5 percent in the first quarter.
"For the remaining players, especially the industry leader,
Verizon, the question is at some point do they join the fray
with these price cuts," he said.
(Additional reporting by Ryan Vlastelica; Editing by Jonathan