The two companies have been battling for control of the mobile consumer market for a long time. T-Mobile (NASDAQ:TMUS) has been periodically unveiling its four-pronged Uncarrier 4.0 plan throughout the 2013 year, and AT&T (NYSE:T) has decided to respond directly to the growing threat with a new plan of its own.
The AT&T Offer
A few days ago, the CEO of T-Mobile reported that the fourth phase of the Uncarrier plan would be announced early this year. In an attempt to take some of the momentum out of T-Mobile’s so far successful campaign, AT&T announced that it would be offering a credit of up to $450 to T-Mobile customers who choose to switch to AT&T.
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This offer is thought to be similar to the one that T-Mobile will be announcing in the coming days. With this, AT&T has made it clear that its business strategy includes direct competition with T-Mobile. This does not come as a surprise when we look at the numbers.
The Two Companies in the Market
AT&T is still a giant in the market, and a dominant household name when it comes to good service and wide coverage. But T-Mobile now has a relative strength index of 65.62, substantially outperforming AT&T. For comparison, AT&T has a relative strength index of 47.30.
T-Mobile is also getting too close for comfort in the stock market as the two companies closed at similar prices on Jan. 6, 2014 (AT&T closed at $34.95 and T-Mobile closed at $32.28). If T-Mobile manages to continue its 2013 success during this year, it is highly likely that it will surpass AT&T entirely and become the dominant player in the market. The T-Mobile stock already grew 40% in the past year, as the company went through quite a few major changes and new launches.
Cautions Against the AT&T Plan
Analysts are quick to caution consumers against taking the AT&T bait. However, as the $450 credit may not be as great a value as it appears on the surface. This is first and foremost because it is not necessarily guaranteed that each customer will get the full $450 credit for switching. Of the credit, $200 is for turning in your current phone, and it has to be a relatively new model in order to receive the full amount. The rest of the credit comes with signing a two-year contract and buying a new device at full retail price.
So the credit could soon be overshadowed by the costs of switching. Of course, if T-Mobile’s fourth phase of its Uncarrier plan is a similar offer to the one AT&T has just announced, then the same cautions would apply for those considering switching to T-Mobile.
Price or Service
In the past, the two companies have managed to exist in the same market since they were competing along different lines. AT&T offered the best service and the widest coverage, while T-Mobile was offering the lowest prices. But as T-Mobile has witnessed increased success, particularly in 2013, AT&T has realized just how persuasive the price factor can be. This new offer can be seen as the company’s attempt to start competing along those lines as well, in order to win back its position in the market.
T-Mobile saw an exciting and profitable year for its company in 2013 and also seems poised to carry this success through 2014. This shows that consumers today are perhaps more concerned with finding the best price than getting the best service.
AT&T’s new offer, which directly targets T-Mobile customers, shows that the company is aware of the changing currents in the market and is making attempts to respond to them. It is too soon to tell whether or not this will be successful, and it is clear that AT&T will have to do more than just this one limited time offer if it hopes to remain competitive against T-Mobile. We will have to wait and see if AT&T has more in store for 2014.