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T-Mobile US and AT&T Price War Continues

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By: Susan Wright
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In the latest tussle between AT&T Inc. (T) and T-Mobile US Inc. (TMUS), the former has reduced prices of its 2GB Mobile Share Value plan by 2% to $65, exclusively for customers who subscribe to the company’s 4G LTE service. As per the offer, subscribers can access 2GB data and get unlimited talk time and text messages. Subscribers will end up paying $40 per smartphone, in addition to the usual $80 per month per line.

Although AT&T has stuck to its premium pricing over the past several years, it is now cutting prices for its Mobile Share plans in order to better compete against T-Mobile’s onslaught. The change in prices is expected to lead to customers switching to data plans that include a combination of unlimited talk time and messaging, along with the advantage of using mobile internet hotspots at no additional charge.

AT&T has typically had a high Average Revenue per User (ARPU) due to its premium-priced postpaid plans. Currently, the company has an ARPU of $47.6, with over 110 million wireless subscribers alone. The new pricing could affect the number of subscribers as they switch to the lower-priced services now offered by AT&T, and reduce AT&T’s future ARPU.

This is the second time this year that AT&T slashed prices of its wireless plans. Earlier, the company had reduced the price of its family wireless data plans by approximately 20% per month in the midst of cut-throat competition in the US telecom industry. The offer allowed customers to enjoy family access for up to four persons of 10 gigabytes for $160 per month. As per the offer, existing subscribers who had purchased data equal to or more than 10 gigabytes (GB) would be automatically converted to the new plan, which also means that they will be unable to buy smartphones at subsidized prices.

T-Mobile, on the other hand, has actually raised the prices of its highest-tier wireless plans to $80 a month. This is up from the previous price of $70 for the plan, which offers Wi-Fi hotspot usage of up to 5GB data, double the previous limit. The data limit for the light data package has doubled from 0.5GB to 1GB while the price has remained unchanged at $50. Also, the company is offering 3GB for $60, up from the 2.5GB previously on offer.

T-Mobile’s price moves come as a surprise, especially since the company has been differentiating itself from premium-priced competitors such as Verizon Communications Inc. (VZ) and AT&T on the basis of low-priced unlimited data plans in the past. One likely reason T-Mobile raised prices for its services in recent times has been its increasing capital expenditure (capex), which has negatively affected the company’s bottom line in the past. The company’s capex has more than quadrupled between fiscal years 2010 and 2013, while net income has declined in the same period. In 2013, for instance, the company made cash investment of $1.1 billion in order to develop its modernization program to expand its 4G LTE services. The investments are further expected to rise as the company aims to invest in upgrading its network. According to T-Mobile’s Chief Marketing Officer, Mike Sievert, the increased costs of unlimited plans have translated into the high prices.

The company’s total wireless subscribers have increased over the years, and it has experienced higher subscriber growth compared to rivals such as Verizon and AT&T.

T-Mobile has experienced high demand for data under its current plans. The company’s data requirements have increased by 50% compared to a year ago. Unlimited plans have gone up to 5GB, based on monthly usage.

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