AT&T vs. T-Mobile: Opening shots in new wireless war?

$450 bounty for switchers may escalate in Las Vegas this week. Photo: T-Mobile, AT&T composite by T. Ponick

WASHINGTON, January 5, 2014 – Wall Street saw frenzied trading in the stocks of both AT&T (T) and T-Mobile (TMUS) Friday as the former Baby Bell launched a surprise attack against the smaller wireless carrier it had once hoped to acquire. In a nutshell, AT&T is offering to pay a bounty, in effect, to current T-Mobile customers willing to switch to the wireless service of the Texas-based telecom giant.

T-Mobile has been a thorn in the side of its former suitor since it began offering cheaper, easier-to-use, and aggressively priced plans last year. T-Mobile’s attractive new plans are a major part in the company’s plan to boost its flagging wireless business. The company badly needed to change the competitive equation in light of the Federal government’s Department of Justice veto of the companies’ merger plans in the second half of 2011.

AT&T is offering to pay T-Mobile customers $450 to make the switch. But, as always, the devil is in the details, and those details may not be intuitively obvious.

In effect since Friday, January 3, AT&T’s deal will:

  • Pay switching T-Mobile customers up to $250 toward a new mobile phone upgrade with AT&T
  • Offer a limited-time $200 per line credit when T-Mobile customers switch their wireless service to AT&T
  • Let transferring customers pick an “AT&T Next” calling and data plan and either buy a new smartphone at retail or activate a phone they’ve already bought. “Next” plans include a provision whereby customers can purchase a new phone/device one time per year, paying for it on installment over the following 20 months.

Tech investment analysts like Jeff Kagan view AT&T’s move as a pre-emptive strike against the smaller carrier, 67 percent owned by Germany’s Deutsche Telekom AG (ADRs traded over-the-counter under the symbol DTEGY) which remains eager to shed its U.S. subsidiary. “‘This is beginning to look like a real knock-down, drag-out boxing match,’” says Kagan in a Reuters report. “‘This battle between T-Mobile and AT&T is just getting interesting.’” 


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T-Mobile’s feisty, outspoken CEO John Legere seemed eager to emphasize this point. He quickly made the battle even more interesting, firing off a breezy, humorously obnoxious and widely disseminated e-mail announcement after AT&T went public with its offer.

“This is a desperate move by AT&T on the heels of what must have been a terrible Q4 and holiday for them,” wrote Mr. Legere. “I’m flattered that we have made them so uncomfortable! We used AT&T’s cash [the breakup fee it was required to pay T-Mobile after the government scuttled the acquisition deal] to build a far superior network and added Un-carrier moves to take tons of their customers - and now they want to bribe them back! Consumers won’t be fooled.nothing [sic] has changed; customers will still feel the same old pain that AT&T is famous for. Just wait until CES to hear what pain points we are eliminating next. The competition is going to be toast!”

CES refers to the widely followed Consumer Electronics Show, an annual closed-floor high-tech exhibition held each January in Las Vegas. This week’s show opens on January 7, and it is widely anticipated that T-Mobile, and perhaps other carriers, with have more “surprise” announcements and perhaps additional products available during the show.

Further, both carriers—which offer similar technologies on their phones, which makes them usable throughout much of Europe for users traveling abroad—still have significant coverage and quality of signal issues in the U.S. While AT&T often offers excellent coverage in those U.S. metro areas where it initially focused most of its buildout efforts, its signal strength and coverage are significantly weaker when callers stray from the beaten urban path.


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Ditto T-Mobile, which, even after its merger with PCS, has been dogged by similar issues. It has attempted to tackle them by going after additional spectrum, building a massive cash war chest for that purpose via a large secondary offering of its stock in November 2013. Even so, it takes months and often years to substantially build out network capacity. Further, a company must actually win bids for new spectrum at auction before even beginning its build-out.

An offsetting plus in this regard, however, might be T-Mobile’s abolition of obnoxious “roaming” fees incurred when a given carrier’s device is operated out of its normal coverage area.

The 2014 CES show could witness some major wireless battlefield prep by all carriers when it opens this week, some analysts speculate. According to Reuters, “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.

“’The natural upshot to any strategy that pays customers to change service is higher churn,’’ he said.

It’s also expected that Sprint (S), recently 80 percent acquired by Japanese owner SoftBank Corp., will also join the battle. Even dominant carrier Verizon (VZ) is expected to get involved.

Meanwhile, T-Mobile’s Mr. Legere continued to razz Randall L. Stephenson, his AT&T counterpart, via Twitter, tweeting:

“#Randall – you gave us cash & spectrum AND we took your customers with #Uncarrier moves, do you really think you can buy them back?” 

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate. He currently owns shares in both T (a 2014 Dow Dog) and TMUS (purchased in the November 2013 secondary offering).

Positions mentioned above may describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.

Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

 

 

 

 


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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  

 

 

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