AT&T Price War Against T-Mobile Could Complicate Possible Sprint/T-Mobile Merger, Stifel Says
AT&T launched a frontal attack against its former proposed merger partner, T-Mobile US, Friday, offering subscribers up to $450 per line to switch from T-Mobile to AT&T. Stifel Nicolaus said in a research note Friday that the growing competition in the wireless market sparked by T-Mobile makes a possible Sprint/T-Mobile merger a tough deal to get past federal regulators (CD Dec 17 p1).
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"We believe the position of T-Mobile as a ‘maverick’ and very aggressive carrier, as well as its recent success in market share gains, makes the approval of such a deal more challenging,” Stifel said. “Seeing one of the two major Bell carriers directly become more aggressive to combat TMO’s aggressiveness will reinforce this view even more among regulators and anti-trust officials in Washington, we believe.”
T-Mobile has promised a big announcement of its own at an event for media and analysts Wednesday in Las Vegas at CES. T-Mobile bills the event as a fourth installment in the rollout of its “uncarrier” strategy. T-Mobile led U.S. carriers in net-adds the past two quarters, picking up more than 1 million in the last quarter. Under the AT&T proposal (http://soc.att.com/JySBE3) T-Mobile subscribers get up to $250 for their old smartphone plus a “Switcher’s Bill Credit” of $200 on or before their third AT&T Wireless bill. “Switch to AT&T and get up to $450 when you trade in your current smartphone,” AT&T said in a promo. “Now that’s a resolution.” The AT&T offer in effect means subscribers can switch without paying early termination fees.
"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,” Credit Suisse said in a research note Friday. “We have seen a number of pricing changes since 2012. We expect T-Mobile to continue to roll-out its uncarrier initiatives, which could include a similar switching promo. We also believe Sprint could become more active in 2014, as its network catches up to peers.”
In a research report prior to the AT&T announcement, Mike McCormack, a Jefferies analyst, warned that T-Mobile’s CES announcement could open a “Pandora’s box” inviting counteroffers from its peers. “Several Internet sources suggest that T-Mobile’s upcoming Jan. 8 Un-Carrier 4.0 announcement at CES will consist of a new ‘Houdini’ plan which will credit a prospective customer’s existing service contract early termination fee (ETF) in exchange for trading in their current device and switching to T-Mobile,” McCormack wrote. “If T-Mobile’s Un-Carrier 4.0 offer does indeed target ETFs, the plan and competitive responses to it will pressure industry margins.”
But Wells Fargo analyst Jennifer Fritzsche said AT&T’s new campaign probably doesn’t mean price wars are “looming” in the wireless market. “From a margin standpoint, we do not believe this move will be overly disruptive,” she said. “Keep in mind, in regard to the phone trade-in, AT&T is already offering a minimum of $99 or the market value if it is higher for any phone trade-in that is less than 3 years old (under this new plan users would only receive $250 for the highest end devices). Additionally, the plans which users come on to must be plans where AT&T is not taking the subsidy hit. We would characterize this press release as more bark than bite.”