The Real Reason AT&T Is Going to War With T-Mobile

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

As we kick off the first full week of 2014, stocks opened higher this morning, with the S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI  ) up 0.01% and 0.07%, respectively, at 10:15 a.m. EST.

On Friday, Dow component AT&T (NYSE: T  ) launched a fresh salvo at T-Mobile  (NYSE: TMUS  ) , offering its rival's customers up to $450 to switch wireless providers. The offer pre-empts what is expected to be a similar competitive offer from T-Mobile in the next few days. T-Mobile has long been a thorn in AT&T's side, aggressively going after its customers, so this ratcheting up of hostilities is not unexpected. However, AT&T may have a longer-term strategic motive to complement the tactical aspect of its new plan.

These are the details of AT&T's offer: T-Mobile customers will receive a $200 credit per line to switch and up to $250 to trade in their current smartphone (depending on model and condition). However, there is a bit of smoke and mirrors going on here, as the headline $450 incentive isn't as attractive as it appears. Indeed, customers who take advantage of the trade-in will not have access to subsidized handsets; instead, they must adopt AT&T's Next Plan, which has users paying the full price of the phone in monthly installments. (Alternatively, customers can keep their T-Mobile phone, coupled with a slightly cheaper AT&T plan.)

T-Mobile's customer-friendly strategy of introducing simpler, lower-cost plans is working: The Wall Street Journal reported that the company managed to add more than 1 million lucrative contract customers last year, many of whom migrated from AT&T. Furthermore, AT&T's move will have an impact on profits: Credit Suisse analyst Joseph Mastrogiovanni estimated it could reduce earnings per share by 1%-2%.

Still, there are broader considerations at stake here: Sprint (NYSE: S  ) , which is controlled by Internet conglomerate Softbank, is reportedly preparing a bid for T-Mobile. Regulators rebuffed AT&T's 2011 bid for T-Mobile on antitrust grounds. FCC Chairman Tom Wheeler reiterated that stance recently when he said that "the mobile business is today, with four carriers, a competitive business, and it's important it stay that way."

By playing into T-Mobile's ground war at limited expense, AT&T contributes to cementing regulators' view that T-Mobile ought to remain independent. Better a small thorn in its side than a much bigger one in the shape of a T-Mobile/Sprint tie-up -- particularly with Softbank's swashbuckling CEO, Masayoshi Son, angling to make his company the No. 1 mobile Internet company in the world.

The time to act is now: Here's the one stock you must own in 2014
There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2784125, ~/Articles/ArticleHandler.aspx, 11/20/2014 4:32:19 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement