In explaining telecom titan AT&T's recent decision to reinstitute unlimited data plans for some mobile subscribers, the famous P.T. Barnum quote came to mind: "Without promotion, something terrible happens ... nothing!"
At a time when competition among the largest four U.S. telecom companies -- AT&T, Verizon Communications (NYSE:VZ), Sprint (NYSE:S), and T-Mobile (NASDAQ:TMUS) -- is near a fever pitch, AT&T is leveraging one of its core strengths to steal share from its competitors in a manner few expected.
AT&T's data carrot
Earlier this week, AT&T reversed its five-year policy against unlimited data plans for new subscribers, though both AT&T and Verizon have allowed legacy subscribers on such plans to remain over the years.
The plans, which became publicly available on Tuesday, come with a catch. To qualify for its unlimited data plan, AT&T subscribers must also subscribe to either the company's U-verse cable TV service or to a satellite TV package through AT&T's wholly owned operating subsidiary, DirecTV, which the Dallas-based company purchased last year for $49 billion.
The move is an apparent counter to both Sprint and T-Mobile, each of which offers its own unlimited cellular data plans without the same TV bundle requirement as AT&T. T-Mobile charges $95 per month for its unlimited-data service, while Sprint prices its unlimited tier at only $70 per month. AT&T's new unlimited cellular data plan, meanwhile, will run $100 monthly before the cost of U-verse or DirecTV. Each additional smartphone will cost $40 a month, with a fourth smartphone carrying no additional cost. For new or existing AT&T users who decide to bundle their cable and cellular packages under the new terms, AT&T will reduce the total cost of their bill by $10 each month. That falls well short of an overwhelming savings, but AT&T could still gain considerably from this new cross-sell scheme.
All about the cross-sell
In creating what it believes is a desirable cellular plan, AT&T is hoping to achieve either of two beneficial outcomes. Either AT&T's new plan will entice some of its existing subscriber base to add either U-verse or DirecTV packages on top of their new cell plans, or, working the opposite direction, AT&T hopes to lure DirecTV subscribers with cellular plans from the likes of Verizon, T-Mobile, or Sprint to ditch their current providers in favor of its new bundle.
AT&T estimates that as many as 40 million DirecTV subscribers currently purchase their smartphone plans from Verizon, T-Mobile, or Sprint. That represents an incredible opportunity for AT&T to steal subscribers, who presumably wish to keep their existing DirecTV service, from its three chief rivals. AT&T currently has roughly 58 million smartphone subscribers, according to its most recent estimates, so even a moderate success in enticing customers away from Verizon, T-Mobile, or Sprint could prove highly beneficial for AT&T.
What's more, this was all a part of AT&T's long-term plan in purchasing DirecTV last year. According to UBS analyst John Hodulik, AT&T viewed being able to offer bundles that the competition couldn't replicate as a way of differentiating itself. The notion makes sense, though the fierce competition to hold on to subscribers could lead to further price cuts from AT&T's rivals.
Either way, AT&T has finally shown its hand with its recent all-in-one unlimited plan, and investors in this space will want to watch out for the likely fallout from this move among all four major carriers in the quarters to come.