Will Smartphone Wars Finally Benefit Consumers?

As T-Mobile drops contracts and attempts to win market share from market leaders AT&T, Verizon, and Sprint, will the increased competition force prices lower for consumers?

Feb 6, 2014 at 8:09AM

Tim Tebow may not be able to land a contract with an NFL team, but at least he's able to joke about. The quarterback without a team appeared in a Super Bowl ad for T-Mobile (NASDAQ:TMUS) touting the company's new no-contract campaign. The commercial, an attempt by the fourth place carrier in the United States to wrest market share from leaders AT&T (NYSE:T) and Verizon (NYSE:VZ), as well as third-place Sprint (NYSE:S), was one of the more well-received ads during the big game.

"It was one of those few spots that had a point, entertained, and was self-deprecating. I give him high grades," said Jon Bond, CEO of marketing company Tomorro cqLLC to the New York Post.

T-Mobile is attempting to shake up an industry that has largely operated by customers getting a low-cost or no-cost phone in exchange for signing a two-year contract for service. Month-by-month services existed prior to T-Mobile, but customers generally had to pay the full cost of their phone upfront. The T-Mobile deal lets customers pay for their phone in installments, always having the option to cancel service and pay off the unpaid balance with no penalties.

Many shots being fired

With Sprint and Verizon mostly watching from the sidelines, AT&T and T-Mobile have been taking shots at each other, embracing new strategies and, in some cases, dropping them quickly. Right before the Consumer Electronics Show in early January, AT&T announced an offer to pay T-Mobile customers up to $450 to ditch the service and sign a contract with AT&T. At CES, the Wall Street Journal reported, T-Mobile launched a similar offer aimed at winning market share from its bigger rival.

The AT&T offer, however, lasted only slightly longer than Denver's chances at winning the Super Bowl -- the company dropped the deal Jan. 31. AT&T spokesman Brad Burns told the Journal about the end of the promotion explaining that the company had said it would be for a limited time.

T-Mobile CEO John Legere, who is quick to go after his competitors (using the strategy of going after the king makes you a more legitimate prince) posted to Twitter Feb. 1 about the end of the promotion taking a shot at AT&T CEO Randall Stephenson.

"That was quick! @ATT already revoking the $450 bribe to @TMobile customers? People weren't falling for it, were they #Randall? #doingitwrong"

The battle rages on

While AT&T dropped its payment for customers to leave T-Mobile (whose similar plan is still in place), the company has not stood pat as it introduced an aggressive new family/small business pricing plan that targets all its rivals. In a press release touting the plans, AT&T offered up the following examples:

  • Today, Verizon charges $260 monthly for a comparable plan that's now $160 from AT&T. A family with four smartphones with unlimited talk and text, and a shared 10GB bucket of data, could switch to AT&T from Verizon and save $100 a month. In addition to the monthly savings, the family in this example would get a $400 bill credit for the four smartphone lines of service added.
  • Current AT&T customers can save with these new plans, too, when they choose a 10GB or larger bucket of data. For example, a family or small business with four smartphones could move to this new plan and save between $40 and $100 per month, depending on their current plan.

Bill Menezes, an analyst at Gartner, told ComputerWorld.com that he sees the AT&T pricing move as a direct response to T-Mobile's effort to woo its customers.

And while AT&T and Verizon keep pulling out ever-bigger guns to shoot at each other, Menezes said in the same article that Verizon might not react quickly to imitate AT&T's move. Verizon, he said, "has displayed a lot more patience than AT&T in trading punches with T-Mobile. Verizon believes it can largely wait this out."

Sprint has also largely stayed on the sidelines, which may be more indicative of what put Sprint in the number three spot in the first place than any intentional strategy to wait while its competitors shoot it out.

Is this good for consumers?

In recent months, this escalating war has led to lower prices for some AT&T customers, the ability for some customers to switch providers without penalty, and increased access to the top phones, including Apple's (NASDAQ: AAPL) iPhone, without a contract.

An intensified battle should continue to squeeze prices lower and offer other incentives, but consumers do run the risk of a company losing the war. Whether T-Mobile fails or Sprint and/or T-Mobile are acquired by any of the other players, fewer players could put a fast end to competition driving price down, especially because AT&T and Verizon have historically been willing to battle over things like network coverage rather than price.

The next step for you

Want to figure out how to profit on business analysis like this? The key is to learn how to turn business insights into portfolio gold by taking your first steps as an investor. Those who wait on the sidelines are missing out on huge gains and putting their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you what you need to get started, and even give you access to some stocks to buy first. Click here to get your copy today -- it's absolutely free.

Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information