AT&T on the Attack: New Year Promo Going After T-Mobile US subscribers

T-Mobile should be proud

The fact that AT&T has launched a New Year promotion to win over T-Mobile subscribers indicates that the tactics T-Mobile has been using to woo AT&T customers are being felt at AT&T – at least that will be T-Mobile take on the latest offer from AT&T. Looking closely at the offer, however, it could be an indicator that the evolved NEXT program at AT&T is a platform that offers enough margin that AT&T can use the savings (from not offering subsidies) to go directly to consumers with a sign on bonus to stimulate churn at their rivals. That is, NEXT separate handset payment plus service plan is more value than a traditional contract with subsidized smartphone. Most likely a combination of heat from T-Mobile and opportunities offered by NEXT are driving this offensive/defensive play from AT&T.

The AT&T Promo: trade-in value up to $250, plus $200 line credit

AT&T is offering TMO customers up to $250 for trade in of a smartphone (value will depend on model and condition of phone) to be used toward an AT&T device or service payment. Switchers will also receive $200 per line “when they transfer their wireless service to AT&T and choose an AT&T NextSM plan, buy a device at full retail price or activate a device they currently own” (see: AT&T Offers T-Mobile Customers up to $450 Per Line to Switch: Customers Ring in New Year with a Superior Network Experience and a Brand New Smartphone ).  AT&T is playing up its leading rank for best customer service in the most recent JD Powers survey, its broad smartphone portfolio, and the fact that its 4G LTE network still leads TMO in coverage (270 m pops covered by AT&T vs 200+ m by TMO). TMO has been touting faster LTE than ATT as well as its HD Voice for better voice quality.

Should T-Mobile be scared?

Fairly early in its turn around, and with its LTE build going full steam, T-Mobile does not want to stumble in its execution of attracting new subscribers and holding on to its subscribers now that it has a “no contract” model as its mantra. In the past, Sprint tried somewhat unsuccessfully to build net adds by paying subscribers to leave their current operator – but this fee was to help cover any Early Termination Fees (ETF) they would need to pay to their old provider where they had a contract.

 In 2014, the race is about 4G LTE coverage and speed and attractive pricing – but also customer service and device selection.

The challenge for T-Mobile is a more price-sensitive customer base. Strategy Analytics’ December 2013 mobile user survey in the US did not highlight any strong variation in future churn intentions between T-Mobile and AT&T customers (born out by the improving churn rate at T-Mobile during 2013), though price is a major factor when picking provider. Almost all T-Mobile customers considering churning over the next year have service price as one of their top-3 factors for carrier selection and almost half include up-front phone costs in that shortlist, compared with noticeably lower ratios at T-Mobile’s big 3 rivals.

 

 

The Metrics: Churn, Gross Adds, Net Adds and what to Expect in 2014

TMO has had several good quarters in terms of ramping up gross adds and more recently net adds, but AT&T has likewise had decent performance. Digging into the numbers, however, shows that AT&T has been increasingly relying on non-handset device connections to keep its adds up, while TMO has been outperforming its larger rival on handsets. This has helped T-Mobile increase its share of postpaid gross adds at the big-4 carriers from 11% in 2012 to 18% by Q3 2013.

With a smaller postpaid base, T-Mobile could quickly struggle to convert that strong gross adds performance into underlying net adds growth without a strong response.

A relatively modest 5-10% of T-Mobile’s current gross adds attracted by the this offer would translate into 2-3% postpaid service revenue loss.

We’ll see TMO’s comeback at AT&T announced at CES next week – rumors are that incentives to move family plans from the large rivals to TMO may be part of this next step for the “Un Carrier”.

And with Deutsche Telekom still looking for a potential buyer for TMO, 2014 could shape up to quite an interesting year in US mobile world, with increasing intensity of targeting competition on 4G LTE and more M&A in the outlook. With this new promotion, AT&T isn’t sitting back to wait for the next attack from TMO but getting out in front – and may be sensing consumer uncertainty about TMO with Sprint’s interest getting a lot of press. So they are going in for the kill.

 

Mr. Legere has done a great job in building value at TMO and will for sure get rewarded handsomely but this AT&T offer represents a real threat to those disaffected users impacted by inferior LTE coverage and limited 2G coverage as TMO migrates.