Bloomberg News

In Verizon’s Price Battle With AT&T, Consumers Get the Spoils

April 05, 2014

Verizon Building In New York

A cyclist rides the Brooklyn Bridge in front of One Brooklyn Bridge Plaza, also known as the Verizon Building in New York. Verizon, the second-largest U.S. phone company, issued the biggest corporate-bond deal ever in September when it raised $49 billion. Photographer: Scott Eells/Bloomberg

Your mobile-phone bill may finally be shrinking.

The industry’s fight over prices, ignited last year by T-Mobile US Inc., is beginning to have a noticeable effect even for consumers who haven’t switched carriers. As they jockey to match or beat each other’s discounts for new customers, the wireless companies are also passing along savings to their current users to keep them from running off to a competitor.

Even Verizon Communications Inc. (VZ:US), the largest U.S. wireless carrier and the one that gets the most revenue per customer, has been dragged into the fray. In the last week, with no formal announcement or fanfare, it matched AT&T’s latest price cut for big-spending, family-plan customers -- itself a move to get closer to the $140 a month T-Mobile charges for an equivalent package. While sales are still expanding for mobile carriers, savvy consumers have been able to save hundreds of dollars a year.

“I’m a good example,” said Roger Entner, an analyst with Recon Analytics in Dedham, Massachusetts. “Last year I was paying $120 a month. I made a switch and now I’m down to $65. I’m getting twice the data at half the price.”

Entner said he didn’t have to change carriers to get the price break.

The number of service-plan adjustments, promotions and price cuts has doubled in the first three months of this year compared with the last quarter of 2013, according to Craig Moffett, an analyst at MoffettNathanson Research in New York.

Price Cut

In its latest price cut, Verizon reduced the monthly charge for using a smartphone on a 10-gigabyte service plan to $15 from $20. For a family using four smartphones, that means a monthly plan of $180 just fell to $160 -- in line with discounts AT&T announced in February. Verizon says its promotion is temporary.

“Verizon does not want to fall too far behind AT&T when it comes to their overall pricing -- especially in the 10-gigabyte-plus category, as that is the most valuable sector of customers,” said Weston Henderek, an analyst with Current Analysis.

While Sprint Corp. (S:US) introduced “Framily” plans this year to stay competitive, it charges $200 a month for an offering equivalent to Verizon’s new discount, the highest among the major carriers. Yesterday, the company started a buyout offer of as much as $650 to customers that switch carriers over the next month, matching an incentive T-Mobile introduced earlier this year.

Investors have long prized Verizon for its ability to charge a premium because it has the best network -- a claim backed by recent reports on measures such as reliability, call quality, data and text messaging.

Revenue Rising

“For us, it’s giving our customers more value for what they’re paying for,” Verizon Chief Financial Officer Fran Shammo said at an investor conference last month.

So far, the price cuts haven’t translated into a decline in the average revenue Verizon gets from each subscription. The average payment rose 7 percent last year to more than $157 a month. Shammo has said he expects it to keep going up as more customers switch to smartphones and add other devices, such as tablets, to their plans. The discounts may encourage that behavior.

T-Mobile’s Lead

T-Mobile led the way in separating the costs of buying devices from the rest of the wireless bill. Its competitors have followed suit, offering phones on installment plans and billing separately for service. This is a bonus for carriers. It relieves them from having to pay hundreds of dollars to offer phones below cost, a strategy that had been used to lure customers into two-year contracts.

Even T-Mobile is loath to use the words “price war.” It’s just “normal, healthy competition,” CFO Braxton Carter said in February. Over time, though, the discounts add up and put pressure on the carriers’ growth. And price cuts are showing no signs of slowing down.

“When AT&T makes a price move, Verizon will respond,” Entner said. “And it starts because AT&T is concerned about T-Mobile. There’s a chain of events to this. It is inevitable.”

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net Crayton Harrison


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Companies Mentioned

  • VZ
    (Verizon Communications Inc)
    • $48.48 USD
    • 0.41
    • 0.85%
  • S
    (Sprint Corp)
    • $6.1 USD
    • 0.07
    • 1.15%
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