Will a Sprint Corporation Price Cut Force AT&T and Verizon to Follow?

The company's new pricing puts it on par with T-Mobile, which has been growing, in large part, due to offering lower prices.

Aug 20, 2014 at 12:30PM

Sprint (NYSE:S) has followed T-Mobile (NASDAQ:TMUS) in lowering prices for family plans, which could force industry leaders AT&T (NYSE:T) and Verizon (NYSE:VZ) to do the same. The move comes just a few weeks after the company's long-expected merger with T-Mobile was called off, and Sprint's CEO Dane Hesse was replaced by Marcelo Claure. Sprint majority-owner, SoftBank's CEO Masayoshi Son, installed Claure, who founded phone distributor wireless distribution company Brightstar Corp., to shake things up, and as a counter to T-Mobile's outspoken CEO John Legere.

Claure wasted little time making an impact introducing a bold new price point for families, while scrapping the company's heavily advertised Framily plans. The new offering, dubbed Sprint Family Share Pack, matches T-Mobile's $100 pricing for four lines -- which is well below AT&T's and Verizon's prices for similar plans -- while offering more included data. Like T-Mobile, Sprint is also offering to pay early termination fees to customers willing to switch to its new plan.

The move gives Sprint and T-Mobile, the number three and four mobile carriers, similar strategies. It also makes it less likely that the two companies will steal customers from each other. With Legere stating that his goal is to make up the 3 million customers who separate the two rivals, Claure's actions have likely made it that  T-Mobile will need to steal customers from AT&T and Verizon to do so.

How is the Sprint deal different from T-Mobile's?
T-Mobile offers families up to four lines with 10GB of included data for $100. Sprint's deal is a little more complicated.

The carrier is offering up to 10 lines for $100, with 20GB in shared data plus a limited-time bonus of 2GB per line, up to 10 lines. That means a family with four phones would share 28GB of data each month through Sprint, but only 10GB with T-Mobile. It's not entirely an apples-to-apples comparison, as T-Mobile customers get access to a number of popular streaming music services that don't count against their data cap.

Sprint makes it clear that Claure sees a combination of price and data as the driving force for consumers. Claure told Bloomberg:

We did a lot of research with customers. Data use is growing exponentially; customers are getting angry at a bill that is larger than they expected. We decided to make it easy and double whatever is in the market. This is the best offer ever in the marketplace.

That may be true, and while T-Mobile customers are unlikely to switch just for the extra data, AT&T's and Verizon's customers are likely to be tempted. How the two larger companies will respond is yet to be seen, but Legere took quickly to Twitter to tout his company's network over Sprint's:

While Legere's tweets can often be passed off as simple bluster, he has a point when it comes to networks. Sprint has the worst overall network quality of the four national carriers, according to a report issued Tuesday by RootMetrics. Verizon topped the chart, with AT&T close behind, while T-Mobile was declared most improved.

Network quality is harder for consumers to see than price and how much data is included. No matter how many tweets Legere sends, it's clear that Sprint now has a deal which makes it a serious rival when it comes to being the low-cost alternative to AT&T and Verizon.

What are AT&T and Verizon doing?
T-Mobile has added at least 1 million subscribers in each of the last five quarters, while Sprint lost 220,000 subscribers In the second quarter of 2014, and more than 2 million in 2013. The growth for T-Mobile has not had a major impact on AT&T or Verizon, which both gained millions of wireless phone subscribers in 2013 (more than 5 million for Verizon, and nearly 3 million for AT&T).
Both larger companies have tweaked prices lower on their multi-line offerings, with AT&T heavily advertising its four lines with 10GB of data plan for $160. Verizon's "More Everything" plan is a nearly identical offer. In cutting prices, Verizon was able to do a better job in protecting its average revenue per user.
AT&T posted a 7.7% decrease in ARPU for the second quarter for post-paid (contract) customers, but the wireless division's revenues rose 3.7% year over year, to $17.9 billion, due to equipment sales. Verizon raised its ARPU slightly for the period during the first quarter, and 4.7% year over year, while growing revenue from $20 billion in Q2 2013 to $21.5 billion in Q2 2014. If T-Mobile's efforts are hurting the big two, it's someplace other than the bottom line.

What will AT&T and Verizon do?
Being more expensive has not hurt AT&T or Verizon so far. If both companies can continue to grow without cutting prices (and profitability), there is no reason to respond to what their smaller competitors are doing.
T-Mobile has been pursuing the un-carrier strategy and offering lower prices for more than a year, but only launched its $100 family deal in July; so it's too early in the game to say whether lower prices alone will be enough to get people to leave. It's possible that Sprint joining T-Mobile with a lower-priced offering will be a consumer tipping point. Until there are signs of that, AT&T and Verizon can afford to charge more, while justifying it by pointing to the RootMetrics report that shows the two leading carriers to have the top networks.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Daniel Kline has no position in any stocks mentioned. He is a Sprint customer. 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