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Everybody is Waiting to See if Verizon Follows AT&T’s Price Cut

February 4, 2014 - Written By Cory McNutt

We are in the midst of a carrier war – nobody really wants to call it that, especially the analysts and investors.  Oh, it was nothing when T-Mobile first started their little cost cutting here and there, calling themselves the “uncarrier” and ridding the need for a two-year contract.  This was quite unheard of, but it did not really ruffle AT&T or Verizon too much – after all, “technically” you were in a two-year contract if it took you that long to pay off your device.  Yes, you could leave before the two years were up; however, if you did that, you had to come up with the total amount of the remaining balance on your unsubsidized device.  Then T-Mobile introduced their JUMP! program to allow for early upgrades and then AT&T introduced their version called Next, and Verizon called theirs Edge – although neither program was as “user friendly” as T-Mobile’s.

T-Mobile continued to lower costs and even offered to pay new customer’s ETF (Early Termination Fees) and continued to publicly make fun of AT&T.  To retaliate, AT&T started to offer up to $450 to customers that would leave T-Mobile and move to their network. T-Mobile then had their Q4 2013 earnings call, and they added over 1.6 million new customers and over 4.4 million for the entire year, having their best quarter in eight years.

Not even waiting until Monday, on Saturday, AT&T announced new family share plans that offer unlimited text and minutes and 10GB of data – 2 lines for $130, 3 lines for $145, 4 lines for $160, 5 lines for $175 and $15 per additional line. As a comparison, a 4-line plan on Verizon would cost $100 more, $80 more on Sprint, and even $20 more than T-Mobile, all on comparable plans. That is slashing their price from $40 a line to only $15 per line – that is quite a change in pricing.

The smartphone market in the U.S. is becoming highly saturated and growth rate is slow – the carriers, except Verizon, seem to be trying to lure customers away from their competitors and AT&T decided they were not going to see the fourth largest carrier add another 4+ million customers in 2014 and really stepped up to the plate. The big question is, how is the largest carrier going to react to AT&T’s announcement?

Verizon said they would react to price changes “if they felt the need,” but it is too soon for the others to react to AT&T’s Saturday announcement.  AT&T’s shares were down 2-percent and Verizon’s shares were down 1.5-percent.  Analysts are not sure what outcome this will have on the entire market. Wells Fargo Securities analyst Jennifer Fritzsche wrote:  “While (AT&T’s price cut) will likely have an impact on service revenue from some of the higher data users, this new pricing approach may also have some positives which should bode well for longer-term margin trends.”

Lowering prices and sticking with them is one thing, but jumping back and forth with prices is not good for market stability, in any business – but customers in the wireless industry really feel that they are paying too much for the service they are provided, and this industry is as close to a monopoly as you can get.  These price cuts are long overdue and hopefully, Verizon will follow – but they have always been the bully on the block, believing that their coverage is so good that they are worth the extra money.  This time AT&T took Verizon’s lunch money and it will be interesting to see how they react in the next few days.

Source: Reuters