The larger carriers, AT&T (NYSE:T) and Verizon (NYSE:VZ), are finding it much more difficult to respond to the Un-carrier's latest move than its previous efforts. With consumers' growing appetite for data, should AT&T and Verizon investors fear an increase in subscribers leaving for T-Mobile?
Dancing around unlimited data
Neither AT&T or Verizon are willing to provide unlimited data to most of their customers. AT&T only offers it to customers that also subscribe to DIRECTV. But both have taken steps (largely due to pressure from T-Mobile) to provide a similar benefit as unlimited data.
AT&T got rid of overage fees for its new Mobile Share Advantage plans this summer, and Verizon provides the "Safety Mode" option on its new plans. Additionally, AT&T copied T-Mobile's Data Stash promotion (Un-carrier 8) and offers rollover data on a month-to-month basis. Both AT&T and Verizon subscribers can now use their data worry free -- which is the main draw of unlimited data plans.
But there's still a big difference in perception; unlimited is more enticing than picking a data cap you're pretty sure you'll stay under most months. Additionally, the nature of data caps requires customers to make a decision as to which plan to buy. One of the main ideas behind T-Mobile's new unlimited plan is that it's the only plan available on T-Mobile -- no other decisions necessary.
Where unlimited data plans will impact AT&T and Verizon
The main area investors will see the impact of the smaller carriers' unlimited data plans is in gross subscriber additions. Customers are more attracted to "unlimited" than "no overage charges." As a result, more new customers are likely to subscribe to either Sprint or T-Mobile to take advantage of the new unlimited data plans they offer.
At the same time, the factors keeping customers at Verizon and AT&T haven't changed. They still operate the two largest networks with the best nationwide coverage. Perhaps more importantly, they're also in a position to bundle wireline services including home broadband and television, things neither Sprint or T-Mobile offer.
But Verizon has mostly completed its buildout of its FiOS network, and AT&T is no longer expanding its U-Verse business. Instead, the latter is relying on DIRECTV for television and its legacy phone lines for DSL service. Verizon is more focused on digital media. The result is that their wireline customer bases are stagnating, which means they don't present much of an incremental opportunity to grab new customers through bundling.
With the market for wireless service becoming increasingly saturated, AT&T and Verizon may find it difficult to bring in new customers. At the same time, they should be able to maintain their industry-leading churn rates.
Will Sprint and T-Mobile improve their churn?
Every new customer that joins T-Mobile is now required to sign up for its unlimited data plan. That could play a big role in reducing the carrier's churn rate because it's relatively difficult for customers to accept moving from an unlimited data plan to a data cap with one of the bigger carriers. Sprint may experience similar results with its new unlimited plan.
Taking a larger share of gross additions and reducing churn means that the smaller carriers are in line to see much better net addition numbers. Analysts at UBS revised their third-quarter net additions outlook for each carrier since T-Mobile and Sprint started offering their new plans; the smaller carriers were revised up and the larger carriers revised down.
While AT&T and Verizon shouldn't see much impact on their abilities to hold onto existing customers, they should see fewer gross additions, especially as churn rates fall at T-Mobile and Sprint.