AT&T announced today that it would be lowering the price to add a smartphone for customers on its Mobile Share plans using 10GB or more of data from as much as $40 to $15. The offer will also be available to new customers who pay for their own devices, either through Next, bringing their own phones, or paying for a phone outright. The following comments may be attributed to Jan Dawson, Chief Analyst at Jackdaw Research:
AT&T’s change in pricing bucks the recent trend in the mobile industry by offering the best deal to existing customers. With all the effort currently going into getting customers to switch, AT&T’s moves seem to be geared towards keeping existing customers first and foremost. This is clearly a response to the aggressive price moves from competitors, especially T-Mobile, over the last several months. But they also reinforce the fundamental difference in strategy between AT&T and Verizon Wireless on the one hand and Sprint and T-Mobile on the other. AT&T has switched entirely to metered data, and as such the best way to grow revenues over time is to increase the amount of data people include in their plans. The introduction of Mobile Share paved the way, and thirty percent of people on Mobile Share plans already have 10GB or more of data. This move is clearly designed to make 10GB the new starting point for Mobile Share plans over time so that more and more customers are at this level. Sprint and T-Mobile are sticking with unlimited data, and so have to capture new customers to grow, hence their aggressive pricing moves recently. AT&T and Verizon will continue to try to attract new customers, but they can grow strongly by growing usage and growing the number of devices per account without necessarily adding huge numbers of new customers. That becomes all the more important as the market becomes saturated and there are few new customers to go around.
But this move is also part of AT&T’s push to get customers to pay for their devices explicitly. Lowering service plans is a great way to incentivize customers to switch to its Next program, under which customers pay for phones in installments over time, rather than having the cost of the device recouped through service fees. As such, both these moves can be seen as AT&T positioning for the future: shifting to data plans as the focus for growth, and breaking out the cost of devices so that service fees truly reflect the cost of service. Most customers will save significantly on their service plans by switching, but since they will have to start paying for their devices separately, those with expensive devices may end up paying more over time, while those who prefer inexpensive devices will be able to save money overall. (Compare the $25/month cost of an entry-level iPhone 5S on AT&T’s 18-month Next plan to the $25 saving per month under the new Mobile Share plan. Higher end devices will cost more, cheaper devices will cost less. And subscribers will save the up-front fee typical with 2-year contracts).
Overall, this is a continuation of several major trends in the US mobile industry: more intense competition as the market saturates and the two smaller national carriers start to become more aggressive, a shift to data rather than voice and messaging, and a move away from subsidies.