Tuesday, December 10, 2013

AT&T Inc. (NYSE:T): T-Mobile-Style Plans Should Drive Margins

AT&T Inc.'s (NYSE:T) latest Mobile Share Value plans, which helps users reduce their monthly fees when paying for their own devices, should drive more smartphone leasing and margins.

AT&T introduced a no contract discount plan for unsubsidized devices bought on its Next device leasing plan for $25 a month plus device payment. The plan for subsidized devices bought on a two-year contract was standardized regardless of data bucket at $40 a month.

The plan first and foremost is intended to drive greater adoption of smartphone leasing plans as the industry slowly reduces the role of subsidies, which is positive for long-term industry margins.

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BMO Capital Markets analyst Kevin Manning believes the biggest impact should be to T-Mobile, which has been winning low-end subscribers from AT&T. Meanwhile, Verizon Communications (NYSE:VZ) may not respond in the near term, but it could introduce similar discounted leasing plans in the future.

AT&T has now made their low-end plans more competitive versus T-Mobile's (NYSE:TMUS) "un-carrier" campaign that is enticing customers with no-contract plans, phone financing and lower-cost international roaming rates. T-Mobile added about 650,000 monthly customers in the third quarter, following the loss of more than 2 million subscribers last year.

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For contract subscribers, AT&T's new smartphone plans have lower prices for low usage subscribers and higher prices for higher usage subscribers. Relative to existing plans, the new 300 MB plan is $10 less per device, and the 2 GB plan is $5 less. The 4GB plan is unchanged.

The 6GB plan is $5 less for 1 device, unchanged for two devices and $5 more for each additional one. The 10GB plan is $10 less for one device, unchanged for two devices and $10 more for each additional device. A new 8GB was also introduced. In addit! ion, feature phone costs drop from $30 to $20.

Relative to Verizon, changes are at the low end with AT&T's 300 MB bucket now $20 less than Verizon's 500 MB bucket, previously it was $10 less. Manning noted that the 1GB and 2GB buckets are now $5 less than Verizon's, which he don't think is material.

Under the latest AT&T plan, users who either own a device or pay for one in installments can start at $45 a month for 300 MB of data, along with unlimited text and talk. AT&T's current price for a similar plan is $70, whether or not the customer already has a phone. Most customers will save at least $15 a month under the new AT&T plans.

Customers can receive these monthly savings when they get a new smartphone for no down payment with AT&T Next; bring their own smartphone; purchase a smartphone at full retail price, or when their smartphone is no longer under contract, and they switch to the new plans.

All Mobile Share Value plan customers will benefit from shared data plus unlimited talk and text on their phones. Consumers will have the ability to connect up to 10 devices, including tablets and other wireless devices while business customers will be able to connect up to 10, 15, 20 or 25 devices, depending on the plan.

Qualifying smartphones can be added to any Mobile Share Value plan for $25 more a month per phone; tablets can be added for $10 more per device.

Customers with basic and messaging phones can enjoy a low monthly rate of $40 for unlimited talk, text and 300MB of data. For $20 more a month per phone, additional basic and messaging lines can be added to any Mobile Share Value plan. In addition to the 300MB option, AT&T Mobile Share Value plans offer data options ranging from 1GB up to 50 GB, all with unlimited talk and text.

The new plan will make monthly smartphone payments even lower than the existing AT&T Next option, by spreading payments over 26 months and giving eligible customers a way to get a new smartphone after 18 mo! nthly pay! ments for no down payment, no upgrade fee, no activation fee and no financing fee.

To a lesser extent, the plans are intended to drive greater adoption of share plans. Though earnings impact is tough to assess at this time, the lease plans are expected to increase equipment revenue and decrease ARPU/service revenue. Overall, the Next leasing plans are margin accretive.

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