Bullet Point Analysis: AT&T GoPhone Adjustments, Defensive & Offensive

WHAT IS IT?

On April 18, AT&T announced two smartphone GoPhone prepaid plan adjustments and introduced a Wal-Mart specific plan:

• The $60 plan increased data from 2 to 2.5 GB + enabled Wi-Fi hotspot capability + unlimited talk 

• The $40 plan increased data from 200 to 500MB + 500 minutes of talk 

• Available at Wal-Mart stores nationwide, a new plan with 1GB of data for $45 a month + unlimited talk

Existing $40/$60 plan customers will automatically receive these increase data levels.  Moreover, not announced, the smartphone $50 unlimited calling and texting plan with WiFi-only (no data allotment) is no longer available. Though the plans are supposed to kick off on April 25, the changes are already available online.

ANALYSIS

The plan action with three components are a mix of defensive and offensive moves.  Anytime a company makes a change, there are clearly causes and effects.  

• As I wrote in my previous post on T-Mobile's newly launched $40 Simple Starter, that plan threatened prepaid competitors.  Eight days later, AT&T shored up its entry $40 GoPhone plan seemingly in a defensive move to match Simple Starter data threshold of 500 MB.  On the surface, it's merely a match but AT&T provides a differentiation for a specific segment of prepaid audience, those who text internationally. Still, Simple Starter addresses the needs of the talker as the plan offers unlimited calling; AT&T only provides 500 anytime minutes.  Against Verizon's $45 ALLSET, $40 price point comes out ahead for the price sensitive though Verizon's add-on data options offer better value. 

While the $40's nemesis was T-Mobile, the $60 GoPhone plan goes up against the Sprint's prepaid SmartPlus unlimited plan at the same price point with the same 2.5 GB threshold (throttled to 3G afterwards).  Sprint's other prepaid brands Boost and Virgin Mobile match other competitors such as MetroPCS and Cricket best.

• Finally, the tell tale sign of an offensive against Tracfone's Straight Talk is a Wal-Mart only plan. The $45/1GB plan matches the price point exactly though StraightTalk is unlimited and throttled after 2.5GB. The AT&T brand, WiFi hotspot tethering, as well as LTE access could be a differentiation but traditional value Wal-Mart shoppers may simplistically look at more data.  

• The ace in the hole for GoPhone is international messaging that competitors do not offer for the respective price points. This will appeal stronger to a specific subscriber demographic.  Provided that AT&T heavily markets this either in niche advertising or social channels, it may be lost.

AT&T's prepaid moves should be construed as urgent since it has lost prepaid subs for the last two quarters ( -32K 4Q2013 & -50K 1Q14).  Though the year-over-year view (-166 4Q12 & -184K 1Q13) looks better, the long and short of it is AT&T lost subs. By contrast, Verizon Wireless has had positive prepaid growth for the last eight quarters, decent for a primarily postpaid company whose prepaid subs are less than 6% of the retail/branded customer base.

COMPETITIVE IMPACT?

• AT&T's GoPhone move is just one component of a reversing prepaid strategy which mainly hangs it hat on the new Cricket market expansion. T-Mobile's MetroPCS brand had been targeting AT&T and Cricket heavily with the 'Apollo' market launches.  In the 1Q14 earnings call, AT&T said that the new Cricket will re-launch at the end of 2Q14, likely targeting T-Mobile and MetroPCS trying to reacquire lost subs. T-Mobile's entry plan featurephone switching growth may be blunt if AT&T markets heavily against that segment.

• Sprint overall needs to consider international messaging for postpaid and SmartPlus given this AT&T action. It may be too early to see how Sprint branded prepaid performs since Sprint doesn't specifically break out brand performance. 

• Verizon's ALLSET plan's $45 price point doesn't match well but it may be unlikely that a plan change is unnecessary unless AT&T makes inroads for a couple of quarters and attains notable marketshare.

Bullet Point Analysis: T-Mobile's $40 Simple Starter Threatens Competitors' Prepaid As Well

WHAT IS IT?

On Wednesday, April 8, T-Mobile announced a new plan called Simple Starter aimed at the individual entry smartphone data user.  Specifically with the following features: 

• 500 MB of LTE data 
• Unlimited Talk and Text
• The subscriber has ability to add on data when 500 MB has been reached
• For an additional $5, the customer can add 500 MB/day or $10 for the next week

ANALYSIS

There are benefits for T-Mobile but this minor plan introduction isn't likely to shake up the industry, hence no UnCarrier X.0 associated with it.  Even its previous plan adjustment (31 days prior), that offered additional data and expanded the Simple Choice portfolio from three plans to four and Stateside international texting did not warrant a X.0 or 4.1 moniker.   

T-Mobile Benefits: 

• From a portfolio viewpoint, T-Mobile now has a lower price point to grab entry data users who aren't sure how much data they may use.  

While T-Mobile has an opportunity to upsell its featurephone users, its designs are at other carriers' postpaid featurephone base. As of 4Q13, Verizon Wireless has 30% of its postpaid subs not on smartphones while it's 23% at AT&T and around 20% or less at Sprint.  This is helped by T-Mobile's $650 switching offer (UnCarrier 4.0) launched in January. On pure out-the-door price perspective, T-Mobile bests even the lower and equivalent pricing (recent price moves at the entry end) from AT&T ($25/1GB) and Verizon Wireless ($30/500MB) simply because of the device access charge ($25/AT&T NEXT, $30/Verizon Wireless EDGE). Sprint's $55 single line Framily plan also comes in higher.  Given the target featurephone customer is likely to be price sensitive, T-Mobile may be successful with this segment. 

• T-Mobile also has an opportunity in converting prepaid users to postpaid.  Let's face it, the 'no-contract' has some of the hallmarks of prepaid but it's still postpaid.   Simple Choice and Simple Starter plans do not have the 'handcuffs' that come with subsidized two-year contracts, however, most T-Mobile customers will take advantage of the equipment installation plan (EIP) with 24 month device financing (a different type of contract lock).  A quick scan of the leading monthly prepaid offerings suggest that the $40 price point for Simple Starter has the potential to make inroads into the prepaid sector.   Looking at the table below, most competitors are at the $45 and greater price point.  Note that the only prepaid offerings at $40 are MetroPCS (T-Mobile brand) and Net10 and Simple Mobile (Tracfone that also buys wholesale from T-Mobile).   

Logically, competitors may provide more data than T-Mobile's Simple Starter, but there may also be an element of brand aspiration and effective T-Mobile marketing momentum beyond features and price to help adoption.  

Looking at Simple Starter, the plan is characteristically old school prepaid. That is, if a customer runs out of data, they can refill. In the olden days, it was minutes, now it's data.  Verizon Allset and AT&T GoPhone plans do just that. Innovation-wise and addressing 'users' pain points and frustrations,' Simple Starter is unremarkable. 

• If T-Mobile is successful with drawing price sensitive entry postpaid switchers and prepaid (that's where the industry growth is), T-Mobile has one of several upcoming elements to help drive to their 2014 2-3 million postpaid net add target. 

COMPETITIVE IMPACT?

• It's clear that Tier 1 competitors' featurephone bases are the targets of Simple Starter, helped with the UnCarrier 4.0 switching proposition. As T-Mobile is offering a out-the-door lower price, it will be tough for rivals to drop pricing, especially at AT&T and Verizon because they want to maintain premium network brand positioning.  At Sprint, Framily from a single line price viewpoint is vulnerable. If T-Mobile had been feeding off Sprint users in the past, it will continue to do with the remaining featurephone base. Sprint's equivalent switching promotion may help stem the bleeding in possibly attracting gross adds.  If the T-Mobile postpaid brand aggressively targets the prepaid segments that MetroPCS doesn't, this could spell trouble for Tracfone, AT&T, Verizon Wireless and Sprint's prepaid group.  

• T-Mobile claims to have additional minor and major announcements to come. All those are components to reach or exceed their 2014 goals.  By all rumors, T-Mobile will post stellar postpaid net adds for Q1 2014 (1million+?). Let's see how T-Mobile does Q2 and Q3 go for gross and net adds.  

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