In a move to cut expenses,
) has extended time on new mobile upgrades available through
subsidized rate plans for contract customers. Subscribers
will now have to wait for 24 months instead of 20 months to avail
subsidized upgrade on their new phones. The term will be levied
on contracts ending Mar 2014 or afterward. The initiative would
bode well for the company's cost structure as it spends millions
of dollars in offering premium devices at subsidized rates.
While smartphones are delivering a strong growth momentum in the
wireless segment, high marketing and associated subsidy costs
have constrained margins. AT&T is currently pays hefty
subsidies on premium handsets like
) iPhone, which can go as high as $300 per phone, creating a
significant cost headwind to the company.
Further, AT&T remains challenged by aggressive pricing plans
of direct competitors such as
). As a result, the company has been offering discounts on
pricing plans, which is another threat to its profitability. In
addition, smaller wireless carriers such as Deutsche Telekom's
T-Mobile and Leap Wireless also offer cost effective voice and
data plans. This may negatively influence AT&T's high-end
handset sales and challenge subscriber retention.
However, we believe these cost headwinds can largely be mitigated
given the company's solid financial position backed by its
foothold in the U.S. wireless market and well established brand
value in the industry. In addition, we also believe that
over the long term, higher ARPU from smartphone users and full
utilization of LTE network capacity by migration of customers
from 3G to 4G networks are expected to mitigate the operating
cost headwinds created due to higher subsidies on smartphones.
Further, equipment pricing is expected to remain more competitive
give the increasing number of smartphones in the market, which
will also lower the cost of equipment selling.
Currently, AT&T retains a Zacks Rank #3 (Hold).
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