Why Your Mobile Phone Bill Is Coming Down

The telecom price war is in full swing with T-Mobile US (NYSE: TMUS  ) and AT&T (NYSE: T  ) cutting plan pricing over the weekend. In the last two months, Sprint (NYSE: S  ) launched its Framily plan and Verizon Communications (NYSE: VZ  )  even jumped into the war. For decades this industry has acted like an oligopoly where pricing was similar and contracts kept you locked into a carrier. All that is changing and the rate of change is picking up...leaving you the winner.

AT&T dropped prices over the weekend...
On March 8, AT&T announced new pricing for customers with one or two lines starting at $65 per month, which is a $15 discount from the current plan for one smartphone with no annual service contract. Customers can also sign up for a free 50 GB allocation of cloud storage. Lastly, new and existing customers will also receive $100 in billing credit for each additional line added on.  

...in response to T-Mobile
This reduction in AT&T's bill comes one day after T-Mobile sweetened the deal on its own monthly plan. Not by reducing the monthly cost but by expanding its services. On March 7, T-Mobile improved its subscription in three ways: 1) it doubled the amount of data on its 4G LTE and tethering plans to 1GB, 2) it began offering free and unlimited international texting and 3) it added more roaming countries.

This follows an admission that competition is heading up
At the Morgan Stanley conference last week, Randall Stephenson, AT&T's CEO, said that the competition among carriers dramatically accelerated last year. It began with T-Mobile shifting away from contracts and device subsidies and began offering to pay early termination fees for customers who switch and trade in their devices. This has forced other carriers to offer device financing as well while embracing no contract plans.

Even Verizon is no longer immune
Verizon had kept out of the war throughout 2013 but T-Mobile's aggressiveness picked up in January and couldn't be ignored any longer. Until this point, Verizon had stuck to its claim that its 4G network was unparalleled and warranted a pricing premium. However, T-Mobile offered to pay $650 to compensate customers of AT&T, Verizon, or Sprint who wanted to switch vendors and trade in their phones for a lower-priced plan.

Evidently, Verizon felt pressure because it finally took the plunge in mid-February and lowered prices. Verizon announced a "More Everything" plan that adds unlimited international text, video, and picture messaging to its unlimited domestic plans. It also doubled the data allowance and dropped the $3 per month fee for access to 25GB of Verizon's cloud storage. While these features seem to be at the periphery of what drives people to a carrier, features like international picture texting could be a pain point for certain demographics and very profitable for firms like Verizon.

In summary, your monthly cost is dropping
The key takeaway from all of these changes is that 1) pricing is coming down and 2) it's going to cut into profits for all of the carriers. They are still offering access to the 25GB of cloud storage, they're just doing it for free, the cost isn't going away. Even though carriers are taking steps to reduce the financial impact by eliminating handset subsidies, its unclear how much of an impact this will have longer term. Its one thing to make an announcement in the press, its another thing for the impact to filter through your installed base.

I'm a good example of this, it took a few weeks for me to realize that we were just handed an opportunity to reduce our monthly bills. Two weeks ago, I called my carrier and cut $40 off of my monthly plan without extending my contract or impacting my level of service. What will happen to profitability when everybody does this?

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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.

  • Report this Comment On March 10, 2014, at 9:01 PM, EquityBull wrote:

    I called ATT today. I have 4 phones. One dumbphone and 3 iphones. Saved $70 with new 10GB family share plan. $840 a year in total savings. Nice!

    Not enough to offset the hit I took though in ATT stock price from the many shares of T I own.

  • Report this Comment On March 10, 2014, at 10:56 PM, wjcoffman wrote:

    What a joke. Prices will drop until they drive out the competition. Another source of revenue: ATT home internet customers incur a $10 fee for exceeding 150 GB. What drives me over 150G you ask? Watching shows on NFLX. NFLX is making deals for unfettered data flow and soon ATT will be getting some of that action certainly. Who will be paying for NFLXs costs of 'access'? The customer. Who is paying for exceeding data? The customer. Ok, now for the trifecta: Who's getting screwed with this internet is everything?

  • Report this Comment On March 18, 2014, at 1:07 PM, framilylist wrote:

    Checkout www.framilylist.com to find a framily plan with 7+ active members or to promote your framily plan code until you have 7 or more people paying at the $25/mo level.

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