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AT&T's New Bundle Won't Fix Its Problems

By Adam Levy - Jun 7, 2017 at 10:00AM

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AT&T is undercutting the competition with a new wireless plus video bundle.

AT&T (T 0.09%) is a television and wireless juggernaut, and it's using its heft in both markets to attract new subscribers. The company's most recent move is to offer a $25 discount on video services to wireless customers subscribing to its Unlimited Choice plan. The move follows a similar offer tied to its more expensive Unlimited Plus plan.

At $60 per month for a single line, AT&T's Unlimited Choice plan is already priced below similar plans from T-Mobile (TMUS 0.99%) and Verizon (VZ -0.49%). Offering a video package for as little as $10 per month on top of that makes it an excellent value for individuals. And with Comcast (CMCSA 0.98%) entering the wireless market, AT&T is really stepping up its bundle promotions to remain competitive.

DIRECTV Now on Roku

Image source: AT&T.

But this deal only makes sense for individual subscribers

As mentioned, AT&T's single-line pricing is less than Verizon and T-Mobile's. Granted, AT&T imposes added restrictions on its Unlimited Choice plan to keep the price low. Subscribers that don't want those restrictions would have to pay an extra $30 per month, making the plan more expensive than comparable plans on T-Mobile and Verizon.

That said, the second line pricing for AT&T is comparably very expensive. T-Mobile offers significant savings versus AT&T for family plans especially considering its recent move to include taxes and fees in its pricing. In fact, the savings on a two-line account are enough to completely offset the $25 video discount for some subscribers.

That's important to note because there's an industrywide push toward more family plans. Both T-Mobile and Verizon have seen the average number of devices per account steadily climb over the past couple years. Multi-line accounts generally exhibit lower churn rates, allowing a carrier to grow faster without having to find as many gross additions.

AT&T may be trying to zig while the competitors zag, specifically targeting single-line customers. Offering a substantial discount on video service should help keep churn lower than otherwise. Comcast is taking a similar approach with its wireless plan pricing, which is only really attractive if you're also subscribing to Comcast's high-end video and internet package.

This won't stop the bleeding

AT&T has lost postpaid phone subscribers for 10 straight quarters dating back to the end of 2014. Additionally, it lost 233,000 video subscribers last quarter, and DIRECTV Now isn't adding any new subscribers either.

AT&T is getting desperate to add new high-value customers, but doing it one customer at a time is a lot more difficult than adding three or four lines at once. It requires a lot more marketing expenses and customer acquisition costs with a higher risk of defection just a few months later.

It's already shown an inability to hold onto customers if and when its promotions end. It's experiencing significant customer losses from U-Verse video as it stops its footprint expansion and customers' promotional discounts end. DIRECTV Now lost 3,000 subscribers in February after many users signed up for a "free Apple TV" after committing to three months of service. Unless AT&T plans to subsidize its already low-margin DIRECTV Now business indefinitely, this bundle is just a band aid instead of a real fix to its subscriber loss problem.

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Stocks Mentioned

AT&T Inc. Stock Quote
AT&T Inc.
T
$21.32 (0.09%) $0.02
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$50.99 (-0.49%) $0.25
T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
TMUS
$132.74 (0.99%) $1.30
Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$44.13 (0.98%) $0.43

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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