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.
Andrew Tonner has no position in any stocks mentioned. The Motley Fool recommends Verizon Communications. 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.