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AT&T Tackles Competition, Announces Credits of Up to $650

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Confronted by the persistent challenge to attract and retain customers, AT&T Inc.T is now offering up to $650 in credits to those opting to switch over to its network. The offer is also available to its existing customers if they purchase phones or upgrade their plans to AT&T Next 24. Last December, AT&T's closest rival, Verizon Communications Inc. VZ) , had launched a similar plan to lure customers of other telecom providers.

Although Verizon and AT&T are the market leaders in the domestic telecom space, of late, they have been facing fresh hurdles in the form of attractive promotional offers from players like T-Mobile US Inc. TMUS and Sprint Corp. S , aimed at poaching their subscribers.

What's on Offer?

Per the offer, upon switching from a different carrier and purchasing a new device from AT&T, eligible customers will be offered up to $650 in credit, that will take care of the device's trade-in value (if applicable) and other switching costs such as early termination fees. Subscribers will receive the allowable credit through monthly bills spread over 30 months.

Switching Costs: A Strategic Target

In general, a high switching cost in any industry implies higher customer retention. Customers purchasing new flagship devices on contract from telecom service providers will not tend to switch to rival carriers easily within the stipulated time period, owing to the existence of high termination fees and other related charges. This has been the primary strategy prevalent among wireless carriers, which has allowed them to retain subscribers and generate revenues in the process.

However, with the U.S. market fast reaching saturation, telecom operators are now increasingly focused on wooing customers of other carriers in a bid to achieve revenue growth. The preferred way of doing this is to pay off the termination charges and other related charges of the old carrier, thus facilitating the process of transition. This has led switching costs in the industry to decline in recent times. For instance, Sprint makes a generous offer to pay off switching costs, including early termination fees, the balance of smartphone installments and other charges, for customers willing to change over to its service. AT&T and T-Mobile too have similar, albeit less grand offers.

The Bottom Line

In Nov 2015, AT&T announced its plans to hike prices for its U-Verse and voice customers. While the carrier is trying to bring itself to the forefront within the domestic telecom industry, such a price hike may not have been the best move for AT&T. Meanwhile, increasing pricing pressure and a wide range of attractive plans flooded by its rivals in the market has compelled AT&T to respond by making such a tempting offer, so as to ensure that it does not fall behind in the race.

AT&T Inc. (T) currently carries a Zacks Rank #3 (Hold).

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AT&T INC (T): Free Stock Analysis Report

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T-MOBILE US INC (TMUS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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