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AT&T Not To Be Distracted By Competitive Noise

December 3, 2015 - Written By David Steele

There are four national carriers operating in the United States of America, split into the two larger businesses of AT&T and Verizon, with the two smaller carriers of Sprint and T-Mobile US. The larger carriers have a reputation of a stronger, better quality network but less favorable prices. The smaller carriers typically offer cheaper prices but a less comprehensive network. All four are engaged in what is described as “an increasingly cutthroat market” by financial analysts at Jefferies: the smaller two carriers are competing against one another and of course the two larger carriers, especially as Sprint and especially T-Mobile US are building out their network. Against this backdrop of offers and consumer price cuts, AT&T is again trying to distance itself from this “noise” within the market. Jefferies said that AT&T’s senior management have taken the view that most subscribers moving to another carrier are the lower value customers, either postpay or prepay, and has reiterated the promise not to “chase” these customers. In other words, not to try to encourage customers to stay with the network by matching or beating other carriers’ offers.

From a business perspective, there is sense in this decision – at least in the short term. AT&T has a cache of loyal customers and of course shareholders. The more price sensitive customers – those who chase the best deals and switch between providers every few months – generate less revenue per line compared with those customers who have been with AT&T for years. The cost of retaining the lower margin customers, either through handset subsidies or reducing service prices (or keeping prices the same but offering more in the package) reduces the margin even more. AT&T is working to maintain its average revenue per customer figure, a key metric for the wireless industry and shows how much the average customer or line spends a month, rather than accepting a drop in this metric in order to maintain market share. The company has only offered a small number of special offers and hasn’t responded to Sprint or T-Mobile US’ new offerings. In short, AT&T is exactly the sort of traditional carrier that T-Mobile is trying to distance itself from as America’s Uncarrier.

Despite the popularity of T-Mobile’s Uncarrier movement, AT&T seemingly continues to prosper. In the third quarter, the business added 2.5 million customers, which consisted of over 600,000 tablets, 1.6 million “connected devices” and almost half a million prepaid subscribers. New Street Research observed that AT&T “held the line in a competitive environment,” but added a note of caution: “We think AT&T will continue to hold firm on pricing until these [postpaid subscriber results] turn negative, and then all bets are off.” In other words, when customers stop joining AT&T for whatever reason, the business will be forced to change their pricing strategy (and presumably drop prices).