T-Mobile (TMUS) got the ball rolling with no contract plans and much cheaper plans than AT&T, something it publicized in the Tim Tebow Super Bowl commercial Sunday evening. Today AT&T fired a big bazooka, not so much at T-Mobile but at Verizon. It makes sense because the name of the game is to attract the highest possible number of high payer customers; a large number of such customers are currently Verizon customers, not T-Mobile customers.
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Here are the details of AT&T new Mobile Share Value plans. Under the plan a family can get unlimited talk and text plus 10GB of shared data on five lines for $175. A similar plan from Verizon costs $300. Over a two year period, this is a savings of $3,000. AT&T is not offering to pay contract termination fees to Verizon customers but is offering a $100 bill credit for each new line added.
AT&T’s price for a family plan with two lines is $130 per month compared to $180 at Verizon, $140 at Sprint (S )and $120 at T-Mobile.
The plan is also available to AT&T’s existing customers who stand to save big if they switch to this new plan. In the past, carriers’ strategy primarily has been to attract customers from competitors. Here AT&T is departing from the age old strategy in that it is making it very attractive for the current customers to stay with AT&T.
The new AT&T plan is bad news for Apple (AAPL) because it strikes at the heart of big subsidies by not offering subsidies. AT&T’s announcement is a major step towards encouraging customers to either bring their own phones or buy phones from AT&T under its Next plan with taxes paid up front and the cost of the phone paid in monthly installments.
Carriers have long disliked heavy subsidies they provide for iPhones but they were reluctant to cut down on those subsidies due to the fear of losing those customers to competitors. Obviously AT&T now feels that it can finally take the chance. It is true that carriers have subsidized not only iPhones but all kinds of phones though ubsidies on iPhones have been larger than those for Google (GOOG) Android or Windows phones. These heavy subsidies for iPhones have helped to fuel growth for Apple.
Some will argue that if consumers do not mind paying $800 for a laptop, they will also easily shell out a similar amount for an iPhone. The hard data we have so far does not support such a contention. (See, Cricket Can’t Move iPhones Without Meaty Subsidy, Bad For Apple.) The new data since the aforementioned column from many sources including iPhone sales at T-Mobile plans has been consistently supportive of the conclusion that subsidies have been a far bigger help to Apple compared to Android.
On January 28, 2014, AT&T reported earnings. After the earnings the stock fell to a 52 week low of $32.01 before recovering. From an investment perspective, AT&T and Verizon stock should be sold and those holding large positions in Apple should lighten up. The reason to maintain a reduced quantity in Apple is anticipation of new product or service categories from Apple.
Disclosure: Subscribers to The Arora Report have long positions in Apple and T-Mobile.