Why Your Mobile Phone Bill Is Coming Down

Here's who will lose in the carrier wars.

Mar 10, 2014 at 8:30PM

The telecom price war is in full swing with T-Mobile US (NASDAQ: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?

Could a carrier be the real winner of the smartphone wars?
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David Eller has no position in any stocks mentioned. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

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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.

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