Given the massive demand for wireless data services thanks to
Apple's
(
AAPL
) iPhone,
AT&T
Inc.
(
T
) seems to be falling short of bandwidth. The company has formed a
new policy of curtailing data speeds to better manage its data
services on its network.
For an unlimited plan user through AT&T's smartphone's
downloading data would now mean a struggle as the company has axed
approximately 99% of the data speed in an attempt to limit the
"unlimited" services.
The company's new act is expected to upset around 17 million of
its customers under the unlimited plan. Complaints have already
started pouring in for speed slowdown after using only 1 to 2
gigabytes by customers. However, on the legal front, the company is
playing fair as it has not debarred the unlimited plans as per the
contract but only curbed the speed limit which was in any case, not
a promised affair.
This has rendered smartphones worthless for most of the
unlimited data users and the only remedy left for them is to switch
to a tiered plan. This might sound pretty expensive for those who
remain heavy users on unlimited plan but for some (wherein one uses
around 2 to 3GB per month) the net impact would be neutral as the
company offers tiered plan at a same price for limited data
usage.
We believe that this can be a temporary relief for AT&T to
better manage network congestion in busy areas but can not remain
the permanent solution in a highly competitive wireless market.
Although similar steps have been taken by other top tier company's
like
Verizon Communications
(
VZ
), the approach seems much relaxed compared to AT&T. Verizon is
only cutting down by the minimum requirement to keep the networks
free of congestion.
The issues now surfacing over bandwidth shortage raises doubts
over the efficacy of the present wireless market, ready for the
ongoing boom in the wireless data space. Over the last year,
wireless carriers like AT&T, Verizon and
Sprint Nextel
(
S
) have registered an upsurge in their data service revenues.
The companies are in a fray to obtain spectrum licensing and
lure customers with deploying 3G and 4G services across their
markets. Most of the investments made are directed toward
technological upgrade and entry into new markets as compared to
capacity into the existing markets leading to poor standards of
services.
Going back to AT&T, the company is working on a number of
strategies to tap opportunities in the wireless data market and
currently operates the nation's fastest mobile broadband network.
By 2013, AT&T intends to extend its 4G network to the entire
American population.
These plans only indicate technological advancement by the
company but not many have been disclosed to resolve the current
network capacity shortfall by the company. How far these issues can
eventually impact the financial results of the company is yet to be
measured but if these problems continue to persist we believe
AT&T may lose customers impacting its churn rates.
The company is already competing with the aggressive pricing
plans of Verizon and Sprint. Moreover, smaller wireless carriers
such as Deutsche Telekom's T-Mobile,
MetroPCS
Communication
(
PCS
) and
Leap Wireless
(
LEAP
) are also offering cost effective unlimited voice and data plans.
This may negatively impact AT&T's high-end handset sales and
result in subscriber retention challenges.
We maintain our long-term Neutral recommendation on AT&T,
supported by a Zacks #3 Rank (Hold).
APPLE INC (
AAPL
): Free Stock Analysis Report
LEAP WIRELESS (
LEAP
): Free Stock Analysis Report
METROPCS COMMUN (
PCS
): Free Stock Analysis Report
SPRINT NEXTEL (
S
): Free Stock Analysis Report
AT&T INC (
T
): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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