The Current Sparring Between T-Mobile and AT&T Could be Just the Start of an Eventful 12 Months
This is set to become a defining year for the US mobile market.
A skirmish for customers has already broken out between T-Mobile and AT&T, which looks increasingly likely to be the prelude to a wider price war. Throw in widespread rumours of further consolidation, a possible transatlantic bid for Vodafone and more innovation in tariffs and LTE, and the US is definitely the market to watch in 2014.
AT&T fired the opening shot this year, offering up to $450 in credits to tempt T-Mobile customers to move to its network. AT&T has been the main target of T-Mobile’s successful Un-carrier strategy, as the two companies use the same network technologies. A week later, at CES, T-Mobile announced its latest disruptive move. Charismatic CEO John Legere said that the carrier will pay early termination fees to individuals and families switching from any rival network. The offer is significant as family plans are highly effective at “locking in” customers to a single provider.
T-Mobile has certainly had a busy start to 2014. It struck a deal with Verizon Wireless this week to buy certain 700 MHz licences in a deal worth over $2 billion. The carrier says the transaction will result in it having low-band spectrum in 21 of the top 30 markets across the US. It also revealed strong customer numbers for 4Q13: branded post-paid net additions of 869,000 compared with a net loss of over 500,000 in the same period of 2012.
In my view, a shake-up in the US has been long overdue. Verizon Wireless and AT&T have thrived for years almost unchallenged in an environment of light regulation and limited competition. Average spending per customer is among the highest in the world (at about $50 per month), while EBITDA margins have topped 50%.
Amid the skirmish for customers, talk of further mergers and acquisition is rife. Reports suggest a bid for T-Mobile by Sprint or Dish Network could be on cards.
Sprint may be best placed to make such a move, given the financial muscle of Softbank and its ambitious CEO Masayoshi Son. Any deal would face close scrutiny from the US regulators that blocked AT&T’s proposed acquisition of T-Mobile in 2011, however. Indeed, the simmering price war may convince regulators that the US would be healthier with four leading operators rather than three.
A bid from Dish may stand more chance. The satellite company is keen to expand outside the stagnant pay-TV market and could put pressure on its larger rivals by offering triple-play services.
I see a very realistic chance that AT&T will bid for Vodafone. CEO Randall Stephenson is keen to expand into Europe, and the British company may be vulnerable after agreeing to sell its stake in Verizon Wireless for $130 billion.
I expect to see further innovation in tariffs in the US this year. Only last week, AT&T introduced a novel concept that bills data charges directly to a sponsoring company, rather than the user. Although the carrier says that sponsored data will be differentiated by speed and performance, the move is still likely to provoke concerns over net neutrality.
Sprint introduced a new plan last week, called Framily. It allows subscribers to create groups beyond just family members, with the price per individual falling every time someone new joins. I’m expecting a far stronger Sprint to emerge in 2014. At CES, it also outlined plans to improve LTE coverage significantly; this will be vital if it is to regain lost ground in the world’s biggest 4G market.
At long last, a more competitive market has emerged in the US, and I’m looking forward to the roller coaster ride.
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