The U.S. telecom industry is highly competitive. As a result, an established player like AT&T (NYSE:T) is investing heavily to stay ahead of the pack and nullify competition from the likes of Sprint (NYSE:S) and T-Mobile US (NASDAQ:TMUS), which are reportedly merging. This merger will create another powerhouse in the U.S. telecom industry, and give AT&T more reasons to bolster its network. So, is AT&T prepared for this challenge? Let's take a look at the different moves the company is making.
Working to improve
AT&T is working on a multi-year plan to transform its business. It is accelerating this transformation through its Project VIP network, which includes LTE deployment, U-verse expansion, and fiber deployment. The company is also focusing on Web 2.0 to profit from the growing usage of data and user-generated content. It has selected two companies, Amdocs and Juniper Networks, as primary vendors achieve its aim of a user-defined network cloud based on modern architecture.
In addition, AT&T is also trying to deliver a better value proposition to customers by moving from feature phones to smartphones. It has also transformed its wireline business from legacy services, such as DSL, to IP networks and IP services. This helped it drive its strongest consumer wireline growth in the first quarter.
AT&T recently announced its plan to strategically target 21 new markets to expand its ultra-fast fiber network to deliver U-verse with GigaPower. With this move, AT&T will be able to deliver faster broadband speeds to users across 100 cities, thereby improving its competitive position going forward. In addition, after acquiring Leap Wireless, AT&T is accelerating its prepaid initiative with the launch of the new Cricket brand.
With such initiatives in the offing, the telecom carrier should continue adding subscribers at a robust rate. In the previous quarter, AT&T had added more than 600,000 postpaid subscribers, with smartphones and tablets leading the way. This was more than double the growth that it had recorded in the year-ago period.
Overall, AT&T had more than a million net additions in the quarter, displaying year-over-year improvement in every customer category. It added 255,000 prepaid smartphone subscribers to its network in the first quarter alone, which has helped it drive year-over-year prepaid revenue growth. Additionally, the phone-only ARPU Plus Next monthly billings for AT&T increased 2% year-over-year.
The steps that the company has taken in recent times have helped it come up with such a strong performance. For example, it has introduced several new Mobile Share value pricing plans for both families and individuals to help customers move off the subsidy model.
Next, it introduced new attractive pricing for the 10 gig or larger plans for customers who purchase a phone with AT&T Next or bring their own device. It also launched a similar value pricing for one and two gigabyte plans. At the same time, AT&T made it easier for subscribers to move off the traditional subsidy model by allowing them to take advantage of these attractive new Mobile Share value pricing options in advance of upgrading to Next. The company believes that these investments in its customer base will positively impact its business in the long run.
A big threat
Competition in the industry is about to get more difficult for AT&T. Sprint and T-Mobile, the third- and the fourth-largest mobile networks in the U.S. are planning to join forces and challenge the hegemony of AT&T and Verizon. This looks like a sizable threat, as both carriers have been aggressively building faster networks.
Sprint, for example, covers over 225 million people with its 4G network. However, the carrier is ambitiously looking to roll out Sprint Spark, its enhanced LTE service that delivers wireless speeds of up to 60Mbps. It recently launched Sprint Spark in six new cities, but aims to cover 100 million people with the service this year.
T-Mobile, on the other hand, claims to have covered 210 million people across 273 metro areas under its LTE network. The carrier has done this at a remarkable speed, setting up the 4G network and covering a majority of the U.S. population in just about a year. T-Mobile has now shifted its focus to upgrading its 2G network straight to 4G by the middle of next year, so this will bring more people under its coverage.
Since T-Mobile is claiming to have the fastest 4G network in the U.S., it is quite capable of giving a tough fight to AT&T. Once combined with Sprint, both will have a lot of firepower to challenge the duopoly in the market.
The bottom line
It is important for AT&T to continue attracting more customers with its attractive plans in the face of stiff competition. The company seems to be doing just that so far, and its moves are yielding results. It has added a good number of customers recently, and going forward, it might be able to continue doing the same on the back of infrastructure upgrades. AT&T investors should continue to have faith in the company as it looks like a solid long-term bet.
Mukesh Baghel 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.