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.

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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.

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