Carriers' price war in the U.S. bad for Wall Street, great for Main Street
AT&T is offering up to $450 to T-Mobile customers who leave the latter for the nation's second largest carrier. Sprint threw its hat into the ring with its new Framily plan that allows as many as 10 unrelated people to share an account. And while all of these lower priced options are great for consumers, they make it harder for the carriers to show revenue growth.
Wall Street analysts are concerned that the tail is wagging the dog. Verizon and AT&T control 67% of the U.S. market for mobile wireless service, and AT&T's reaction to what has amounted to taunting by T-Mobile CEO John Legere, has them scratching their heads. Jefferies analyst Michael McCormack pointed this out when he said, "The most disappointing thing is that AT&T is reacting to T-Mobile. How long is it before Verizon reacts?" Wall Street would prefer that Verizon and AT&T ignore T-Mobile or else a price war might breakout. Again, it would be bad for Wall Street, but great for Main Street.
T-Mobile has led the way over the last few months, led by its charismatic CEO John Legere. The executive has tossed out those Harvard and Wharton textbooks on how a business should be run, and has led the industry to make some very consumer friendly changes. T-Mobile has ended subsidized pricing on new phones and the accompanying 2-year contract. It offers customers multiple phone upgrades in a 12 month period, and has eliminated roaming for data used in over 100 foreign countries. T-Mobile also offers tablet owners 200MB of free data a month. While the carrier has added more than 2.6 million new subscribers over the last two quarters, all of these promotions have to affect the bottom line.
The public sees this back and forth between T-Mobile and AT&T as a way to score lower prices, but analysts seem to believe that both participants are going overboard. Kevin Roe of Roe Equity Research calls this whole battle between the two operators as an "unhealthy market dynamic," and sees AT&T continuing to react to Legere's red cape until it can stop the exodus of customers leaving for T-Mobile.
Legere might be the first CEO of a public company to shrug off the risk to profits of a price war. Already considered to be extremely pro-consumer, at CES he said that he would rather give consumers a good deal even if it means not matching the profit margins achieved by rival firms. Such blasphemy used to be rewarded with a pink slip issued by a company's board. "We can be very profitable,"said the executive, "but I don't think you need to make 55 points of EBITDA margins." T-Mobile has a long term goal of a 34% to 36% EBITDA margin. Verizon and AT&T have higher EBITDA margins of 51.1% and 42% respectively.
Despite T-Mobile's bold moves, Verizon Communications CEO, and former Verizon Wireless CEO Lowell McAdam said that T-Mobile can't buy loyalty and that Verizon customers who switched will eventually return. Sprint CEO Dan Hesse chimed in with a similar statement. The other day, John Legere said that if everyone in the U.S. switched to T-Mobile, Americans could save $20 billion. While obviously this will not happen, it is an indication of the amount of money that could be cut from carriers' bottom lines. And that is what makes Wall Street nervous. Main Street, on the other hand, wouldn't mind seeing this price war escalate.
1. Commentator (Posts: 2863; Member since: 16 Aug 2011)
"Such blasphemy used to be rewarded with a pink slip issued by a company's board."
Any board that would do that would be extremely short-sighted, especially were it T-Mobile's board. As the "little-guy," T-Mobile has no choice but to respond like this. Going head-to-head with a behemoth like AT&T on their own terms would be suicide.
Legere's not an idiot. He's not just doing this to be the good guy. He knows that doing this can very well mean much larger profits down the road.
2. Augustine (Posts: 921; Member since: 28 Sep 2013)
In Capitalism, the economic system is controlled by the consumers. The control of the economic system by corporations is called Syndicalism. In other words, when it's good for consumers it furthers Capitalism, when it's good for corporations if furthers Syndicalism. Ergo, Legere is a true capitalist and McCormack, a crony capitalist, a corporatist and a syndicalist.
18. Jayshmay (Posts: 82; Member since: 27 Mar 2011)
Very well worded! Thank you for explaining that!
I'm relatively new to Tmo myself, joined them 4/29/13 fir the S4, left Verizon.
3. corporateJP (Posts: 2341; Member since: 28 Nov 2009)
"McAdam said that T-Mobile can't buy loyalty and that Verizon customers who switched will eventually return"
Lowell McAdam, like every other high level Verizon executive, has a whorish arrogance about him.
Sorry, Lowell, your smelling your own farts again, not all of us will be coming back to be violated by your band of corporate rapists.
On a side note: up yours, Wall Street.
19. Jayshmay (Posts: 82; Member since: 27 Mar 2011)
I agree! Not just Vzn's execs, but some of their customers are cocky!!
4. InspectorGadget80 (Posts: 7030; Member since: 26 Mar 2011)
I'd say very bad. every year they are getting greedier and greedier. I used to be with AT&T for 8yrs till they got rid of my unlimited data then went prepaid got a unlocked phone stick a SIM CARD prepaid in it and save myself 70$ per month. who can afford 80$ a month with only 2GB worth a data?
15. bigdawg23 (Posts: 414; Member since: 25 May 2011)
How did they get rid of your unlimited data? Unlike Verizon they don't force people off of it when buying a new phone. Today I still have my unlimited data for $30 before discount. Going prepaid gives you less acess to towers and shrinks coverage.
Last month I hit 10GB and no throttling or warning from ATT so it is truly unlimited.
5. a_merryman (Posts: 749; Member since: 14 Dec 2011)
This is what they seem like to me:http://i.imgur.com/RsI9t.gif
6. TheRetroReplay (Posts: 252; Member since: 20 Mar 2012)
I see no reason to go to T-Mobile again, I had it as my first carrier and no matter where I went there as no service at all, of course I lived out in the middle of nowhere but I couldn't use the phone as a phone. When I moved to a big city I finally had service, but I eventually switched to Verizon due to several very poor T-Mobile customer service experiences. And then I moved back to the middle of nowhere
If you live in the right areas T-Mobile is good, not great, but good. But if you're in an area where their service is nearly non existent, you're paying them for no reason because you don't have coverage. Verizon is correct that you can't buy loyalty and that customers they lost to T-Mobile will be back because those living in areas where T-Mobile's coverage is bad, they'll go back to Verizon so they can use their phones, as phones.
I hope that this price war will work out for T-Mobile though, then they could get more towers to expand their coverage.
11. downphoenix (Posts: 2744; Member since: 19 Jun 2010)
T-mobile does offer Wifi calling and is the only major carrier that does, so that they can allieviate coverage woes somewhat, depending on how good someone's access to Wifi is. Wifi calling also helps with network congestion and such too.
14. npaladin2000 (Posts: 165; Member since: 06 Nov 2011)
They implemented that WiFI calling out of necessity, primarily because their 1900 mHz signal has too much trouble penetrating buildings and working indoors. That's all it's really meant for, to let you use your T-mobile phone at home, and maybe at the office if the IT department doesn't block it. But there's never going to be enough WiFI hotspots out there to replace a decent amount of cellular towers,
7. GeekMovement (Posts: 1918; Member since: 09 Sep 2011)
"Despite T-Mobile's bold moves, Verizon Communications CEO, and former Verizon Wireless CEO Lowell McAdam said that T-Mobile can't buy loyalty and that Verizon customers who switched will eventually return. Sprint CEO Dan Hesse chimed in with a similar statement."
LOL Sprint has loyalty? Maybe if they expanded their voice coverage years ago they would! The only loyalty I see are the big cities such as LA, Dallas, Chicago, and NYC where they're constantly upgrading the network, but other cities? Nah not so much. I'm fed up with waiting for better coverage from Sprint and I'm under serious consideration about switching over to T-Mobile despite some negative experiences I've heard from people.
8. camera531 (Posts: 269; Member since: 30 Jun 2012)
You're wrong about Sprint's coverage in LA. They're data service is non-existent and even if you see 3g or lte on the phone, it's edge speeds at best, or no service at all. I don't know how Sprint gets away with this without major lawsuits. They charge almost $100 a month, but literally don't provide service.
9. npaladin2000 (Posts: 165; Member since: 06 Nov 2011)
I might give T-Mobile a chance...if they had more than a single tower around here. He's definitely trying to make his company competitive but ultimately, he's a service provider that can only provide limited service, and until he fixes that, it's going to limit their capability of adding subscribers.
Interesting little fact about AT&T: they don't offer LTE in my area to their own subscribers paying $100 a month or more. But buy a NET10 AT&T SIM card, slap it in the same phone, configure the APN, and voila! LTE. Methinks AT&T isn't quite reacting enough to T-Mobile.
12. DAMONORIBELLO (Posts: 104; Member since: 18 Mar 2012)
"he's a service provider that can only provide limited service, and until he fixes that, it's going to limit their capability of adding subscribers"
This is his move to fix that.
13. npaladin2000 (Posts: 165; Member since: 06 Nov 2011)
But he can only add so many before he's going to have to spend money on infrastructure to accommodate them, Towers and backhaul cost a lot of money to deploy. Even with their metro area strategy to get the most out of the towers they do deploy, there's still a capacity issue.
So the question is, is he willing to make the investment to do it, especially while at the same time cutting down on potential revenue and leaving him less money to invest in infrastructure expansion?
17. housry23 (Posts: 99; Member since: 03 Jun 2012)
They just spent 3 billion dollars to buy 700Mhz spectrum from Verizon. T-Mobiles AWS bands are great for keeping congestion down and fast speeds, but they don't penetrate buildings and homes very well. This purchase is a first step toward fixing the poor coverage. Not only does the 700Mhz spectrum penetrate buildings, it also reaches further. This is how VZW and ATT can cover all of America. The bought up all the low band spectrum because they have all the money. Also, there's going to be an auction for more low band spectrum. I believe it's the 600Mhz that the TV stations used to broadcast on before they went digital. If the FCC allows T-Mobile to buy that and doesn't play favorites, there's a real possibility that T-Mobile will be the best choice for coverage in 3-4 years.
Yes I understand their coverage stinks now. If you're in a highly populated area, there's a good chance T-Mobile is your best choice. If not, wait, continue to check the coverage, and when they expand give them a chance. Or...hopefully by then, AT&T and VZW will take T-Mobile seriously and start unlocking their phones, and charging less for the tiny little bit of data. They want everything streamed from the cloud, but you have to pay to really be able to do it.
16. bigstrudel (Posts: 518; Member since: 20 Aug 2012)
Translation: Whats good for Wall street is bad for consumers.