AT&T expected to have its biggest net post-paid add since Q4 of 2009, but at what cost?
The nation's second largest carrier says that half of its smartphone users are on a discounted plan, and that figure is expected to rise by 50% to three-quarters of its smartphone users by the end of the year. Analysts say that this is not a good sign for AT&T as it could reduce the value of the company's subscribers over the long term.
In other words, AT&T might not be able to squeeze any more coins out of its customers. Consider that for the 12 months ending in June, the operator is expected to announce that it added 2.4 million new postpaid subscribers in that period. But despite the additional customers, wireless service revenue is expected to be flat for the three months ended in June, on a year-over-year basis. Some see the numbers coming in even worse. Excluding the purchase of Leap Wireless, AT&T will report a drop in mobile-service revenue of 4%, according to Citigroup analyst Michael Rollins. But company spokesman Brad Burns blames this all on new plans that shift revenue from services and moves it to equipment. Burns says that AT&T is attracting new customers at a faster rate than it has in years.
But AT&T has a problem. The 75% of its smartphone users that have opted to leave the world of subsidized phones, are rewarded by paying a lower amount of money for voice, text and data. While AT&T does save money by not having to subsidize part of the cost of an expensive new phone, the amount that AT&T is saving on the phones is less than the amount of the discount that these customers are receiving. Result? Red ink. Ironically, while carriers have been trying to end subsidies for years, once a customer starts paying full price for his phone, his long term value to the carrier drops.
T-Mobile, which was the first to end subsidized pricing, is also dealing with the same problem that AT&T is. For its first quarter, T-Mobile added over 2 million new subscribers for the first time since, well, ever. The exact figure was 2.4 million subscribers, which has made John Legere the Pied-Piper of mobile. For the period, T-Mobile did lose $151 million on revenue of $6.88 billion.
2. QWIKSTRIKE (Posts: 968; Member since: 09 Mar 2010)
"Analysts say that this is not a good sign for AT&T as it could reduce the value of the company's subscribers over the long term.
In other words, AT&T might not be able to squeeze any more coins out of its customers."
There comes a time when you have to ask how much is enough. Greed never ceases to amaze me! Being able to rake it's customer base over the coals is all that analyst worry about. This one analogy is why businesses always end up going out of business or falling out of favor with the consumer! Thank god for competition like Sprint and Tmobile.
Analyst should more be worried about customer retention and offering value to said customers to keep them rooted there.
6. Jommick (Posts: 221; Member since: 10 Sep 2013)
I wholeheartedly agree that maintaining customer loyalty and offering a value proposition to customers is key in today's economy to financial stability as a company. It's fundamental to capitalism, and it's why we have miniature touchscreen computers that are more powerful than computers that came out only ten years ago. It's why we have the ability to have 1080p High definition movies streamed to our living rooms over the internet when ten years ago it took long enough to load a picture that you could mow your lawn, walk your dog, read "War and Peace", and still have about ten minutes of waiting.
That said, one of the coexistent core values (the "why") of capitalism is to generate revenue and turn a profit. The primary goal of any for-profit entity is to make money for its owner/shareholders. It's intrinsic to the name itself: "for-profit". If they wanted to do charity work, they'd be a non-profit.
These incredible advances aren't there because they just thought it would be cool to do someday, they exist because of competition from other companies who want to make those same profits or better.
Sometimes, that competition finds a way of doing it better and/or for less money. As an analogy, American automakers panicked in the 80's and 90's because the Japanese had found a way to make a car for significantly less money and with better reliability. There are numerous people to this day who drive a car made by Honda, Toyota, or Nissan. The Japanese didn't make these cars just to embarrass American automakers, they did it because they were greedy and wanted to make money.
Samsung didn't develop a world class brand of smartphones so their mom would be proud of them, they did it for money.
Apple didn't make the iPhone because they were bored one day and decided to waste money on researching something new, they did it for money.
You sound opposed to this, but I for one am not. I like it when large companies get greedy because it means newer, cooler stuff for me. It means better, faster, more reliable service for me.
If you're so opposed to greed, should I turn in my smartphone and get a carrier pigeon for all my long-distance communication?
tl;dr - wanting to make money isn't evil
9. QWIKSTRIKE (Posts: 968; Member since: 09 Mar 2010)
Well said and kudos to you for a well painted corporate picture of how things work in Corporate America. However; live by the word die by the sword. Greed, can break you just like it can make you. When greed is always the sole force behind anything goes sour! I have been in medical sales to medical institutions, and restaurants for 25 years and can tell you all about profit and making the end user happy for profit! I never have issue making as much as possible, but I always remember in the end value is what the end user always wanted in the end when spending their money!
No one asked anyone to do any thing for free. In fact go ahead make a profit, but remember customer loyalty, and getting value for money spent is what causes a consumer to buy a product not greed!
When a customer no longer sees value for the same product he usually stops buying, and goes to the competition. Consumer loyalty is tied directly to value in the products that they by to keep them coming back. That is all that I am implying here.
Now should you want to give up your phone for a carrier pigeon because I feel that greed being the only force to drive any company is not good for that company in the long run be my guest!
13. FDAnconia (Posts: 1; Member since: 06 Jun 2014)
I registered just to say thank you. So...
Thank you, thank you, thank you, thank you. And thank you.
It is good to know that people who think as you do still exist in the world.
3. Slammer (Posts: 1497; Member since: 03 Jun 2010)
I seriously question the state of AT&T's issues. This company has so much cash on hand and incoming revenue. We've heard AT&T cry the blues for so many years that it is hard to trust anything it says. While I am not dismissing the trend of less expensive plans, I'm quite sure AT&T is going to not only survive, but will also keep lining the government pockets to continue its quest for domination.
4. ajac09 (Posts: 1466; Member since: 30 Sep 2009)
AT&T is not going anywhere anytime soon. Moral of the story is you dont know as much about the industry as you think you do.
5. Jommick (Posts: 221; Member since: 10 Sep 2013)
General Motors almost went bankrupt a few years ago. If it weren't for the government, they would be nonexistent in today's world. There's no such thing as a company that's too big to fail.
8. Bigtalker (Posts: 15; Member since: 19 May 2014)
"T-Mobile, which was the first to end subsidized pricing, is also dealing with the same problem that AT&T is. "
What problem is that, making money? T-mobile doesn't make profit and AT&T does. So I'm a little concerned that the person writing this article thinks this way. Leads me to believe he knows nothing of the industry.
11. Augustine (Posts: 1006; Member since: 28 Sep 2013)
He strangely forgot to mention the cost to TMUS of the subsidy for ETFs, which taints the whole write up as uninformed.
12. Alan01 (Posts: 299; Member since: 21 Mar 2012)
The problem is that they have given customers a larger discount than the amount they are saving by removing subsidies. Eventually, it doesmeanred ink for AT&T.
14. Bigtalker (Posts: 15; Member since: 19 May 2014)
Again maybe you should do more research before writing this article. In most cases they are not giving more discount then they would have gotten had the customer done a 2 year. Also the fact you trade your phone in to get a new one is another way AT&T will make money re-selling the device. Don't just assume a big company like AT&T would take a lose based on a company notorious for being in the red T-mobile is. The business model for this program is not showing any signs of pushing them into the red, and T-mobiles failures are not a sign they will.
15. Bigtalker (Posts: 15; Member since: 19 May 2014)
oh and not to mention 90% of NEW customers are not eligible for the no contract deal......
10. Augustine (Posts: 1006; Member since: 28 Sep 2013)
Thankfully, this is a capitalist economy, when corporations must adjust their costs to the price that the customer is willing to pay, not the other way around. Or is it rather a corporatist economy, where even consumer publications like this go out of their way to defend corporations at the expense of consumers? If so, Mussolini has some words about it: "Fascism should more properly be called corporatism because it is the merger of state and corporate power."