AT&T Lags the Dow as T-Mobile Battle Heats Up

A T-Mobile ad showing incentives to customers who switch carriers leaked this morning, and that's why AT&T is lagging the Dow Jones Industrial Average.

Jan 8, 2014 at 3:30PM

The Dow Jones Industrial Average (DJINDICES:^DJI) is off 0.64% today after the Federal Reserve released minutes from its last meeting. This was the session that saw the Fed's $85 billion monthly bond-buying program reduced to $75 billion. The consensus is that the easy money didn't offer the benefit it once did. If the economy continues to improve we'll see more tapering in 2014 because the Fed appears to be ready to reduce the program slowly over time.

AT&T lags the Dow
The biggest mover today is AT&T (NYSE:T), which is down 2.4% with just 30 minutes left in trading. An ad showing rival T-Mobile (NASDAQ:TMUS) offering to pay the early termination fees of other carriers for customers who switch to its wireless service. The deal will likely be formally announced later today. Exact details aren't yet known but rumors are that T-Mobile will offer to pay up to $350 per line for customers who make the switch.   

AT&T made its own aggressive move last week by offering $450 in total incentives to T-Mobile customers who switch to AT&T Next plans and buy a new phone. This was thought to be a shot at a deal soon to be offered by T-Mobile, and today it seems clear that was the case. There appears to be a battle playing out between these two carriers that could be costly in the long term, which is why AT&T's stock is down today.

T-Mobile's offer will impact Sprint and Verizon Wireless as well, but AT&T is the biggest target. Verizon Wireless has some protection because it can already charge a premium thanks to a network that is superior to its industry rivals. Switching to T-Mobile wouldn't likely be attractive to most Verizon subscribers. Sprint also offers all-encompassing value plans and T-Mobile doesn't offer a lot of savings for those seeking value.

AT&T is stuck in the middle, with higher prices than T-Mobile but not the best network. It may be attractive for some customers to make the switch.

It'll take months to determine whether either of these offers are successful for T-Mobile or AT&T, but a price war isn't good for the industry. This has long been a cushy, high-margin business, and T-Mobile may be upending that balance as we speak.

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Fool contributor Travis Hoium manages an account that owns shares of Vodafone, Verizon's partner in Verizon Wireless. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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