Here's How AT&T's Enhanced Unlimited Plans Are Competitive

Well, it's the first quarter and carrier(s) historically have restructured its rate plans in order to remain competitive or gain the upper hand.  Restructuring is different than running short term promotions to goose up the quarter's number. T-Mobile and Sprint are already doing that. For this first quarter, we find AT&T 'enhancing' their two rate plans, formerly known as Unlimited Choice and Unlimited Plus. Now, the company adds the Enhanced moniker to lengthen the product names.  The announcement was buried in a press release about regional promotion offers and the new rate plans began life on March 1.

The changes in a nutshell:

Unlimited Plus Enhanced (pricing includes $10/month autopay/eBill credit): 1 Line – $80; 2 Lines – $150; 3 Lines – $170; 4 Lines – $190; 5-10 Lines – $30/line.

Each line includes up to 15GB/month tethering. Each account includes free HBO for life regardless of whether customer subscribes to an AT&T video service and a $15/month video credit for DIRECTV or DIRECTV NOW. 

Unlimited Choice Enhanced (pricing includes $10/month autopay/eBill credit):  4 lines for $160/month: 1 Line – $65; 2 Lines – $120; 3 Lines – $140; 4 Lines – $160; 5-10 Lines – $30/line.

Full 4G LTE speeds (vs. 3Mbps previous). Each account includes free HBO for life regardless of whether customer subscribes to an AT&T video service and a $15/month video credit for DIRECTV NOW.

Looking at the new versus the old:

• the additional line rate went up 
• the first/single line went down 
• more GB for tethering 10 -> 15 GB
• no more throttled at 3Gbps (DL) for Choice subs
• $15 video credit - DTV or DTVNow

Clearly, there are pros and cons. Some may view increased cost, some may view the changes gives more choice and features. Others will see that it's changing the tables (but continuing the strategy) for bundling wireless service and video.  It's all those things depending on one's own perspective. But the true test will be how competitive the 'enhanced' move is against other carriers, and which ones?  Let's face it, creating and refining rate plans isn't a simple task (hat tip to all price planners) but the final product needs to be an effective Swiss Army knife.  What's the holistic view and how do the Enhanced plans stack up?

 Those who long follow carrier competition, you know that typically the big two's rate plan moves are usually against each other.  Yet, in today's environment, T-Mobile's multi-year momentum needs to be addressed.  (Way back machine: In the late 2000s, AT&T went toe-to-toe against T-Mobile's value pricing. In an earnings call, then CFO Pete Richter said that it was a mistake and AT&T wasn't going to do it anymore.)  That was then, this is now.

AT&T introduced Unlimited Choice to address potential and existing customers' price sensitivity and wanted the AT&T network (the same is true for Verizon's gounlimited plan). As the chart above shows, Choice Enhanced beats T-Mobile One on single line but stays in line up to line 4 (all non-promotional pricing).  Moreover, the new Choice Enhanced pricing beats that of Verizon's gounlimited.  The same holds true for Plus Enhanced against Verizon's beyondunlimited.  Both restructured plans provide a nice $10+ price gap against its Verizon counterpart.

Moving forward, can T-Mobile stand losing out to price against AT&T? Maybe, as Magenta will argue that its real competitor is AT&T's Plus Enhanced plan which it beats. Sprint for its part remains the price leader and with its promotions, it just needs to acquire new subs.  Yet Verizon is in a quandary as this AT&T price move not only affects consumers but the more lucrative enterprise and other business segments.  First in my mind is FirstNet.  While AT&T is the lone FirstNet provider, it needs to bring the public safety entities into the FirstNet fold. What better tool than this more advantageous rate plan to help shift first responder accounts from Verizon onto AT&T?

It's the third month of the first quarter.  How vulnerable are Verizon Wireless consumers and business customers to this change? The rate plan is only a week old but I suspect that AT&T on the feet sales folks have been talking the price savings up in business and potential FirstNet accounts. The question is will Verizon react this month or the next? The price gap is decent.  Tempus fugit. 

  

2017 Prepaid Roundup - Winners and Losers

Yes, it's true. 2017 is two months behind us and the wireless industry is talking about the up and coming 5G.  While the US carrier sector focuses on the higher revenue and lower churn bearing postpaid segment, prepaid is often overlooked. Though prepaid experiences lower average revenue per user and higher churn, prepaid revenue and subs are still a formidable wireless segment.

The big 5 prepaid players, some with flanker brands, dominate the net addition or loss numbers. Therefore, the focus will be on AT&T, Sprint, T-Mobile, Verizon and America Movil.

Losers

It's pretty obvious from the above chart which company is the year's biggest loser. America Movil lost over 2.9M subscribers. According to the company, the dominant contributor was Safelink (government subsidized lifeline program) disconnects. America Movil wasn't the only company that bet big on the government program. Sprint's Assurance Wireless brand targeted the same segment and also suffered previous losses in its prepaid base.

The second loser was Verizon prepaid. After what looked like an upward trend in 2Q and 3Q, the company crashed with 184K losses, mostly with prepaid basic phones. Verizon and America Movil are moving to increase revenue with smartphone subscribers, in essence deemphasizing the classic pay as you go customer.  These two companies are somewhat late to the party as that's been the strategy for T-Mobile's MetroPCS and AT&T's Cricket for several years.

Winners

The clear winner in terms of sub adds is clearly AT&T's Cricket.  This flanker brand has been the steady growth catalyst since 2015.  What's important for AT&T is the momentum shift from 2016 in which T-Mobile (MetroPCS) dominated with over 2.5M adds versus AT&T's ~1.6M. It's likely the two company rivalry will continue. Despite losing the overall 2017 growth title, T-Mobile is a winner. Last but not least is Sprint with its major brands Boost Mobile and Virgin Mobile. Though Sprint came out 373K subs in the positive and paled in comparison to AT&T and T-Mobile, one needs context.  In 2016, Sprint lost about 500K subs and in 2015 the loss number was over 1.5M.  So 2017 was a win for Sprint in my book  

2018  

Coming out of 2017, each player is focused on growing subscribers using the multi-line strategy. While the revenue per user part is less than a single line, the playbook is decidedly reminiscent of postpaid. Remember the old voice days when the financial community were shortsightedly concerned that carriers were leaving money on the table with meager $10/month add-a-lines?  The tradeoff obviously is in lower churn. More lines equals the less likelihood to churn.  The equation changes a bit with prepaid as price is also a main consideration.   At the end of '17 and also now, competitors are moving to the 4 lines for $100/month.   As this is tax 'refund' season (for some), competitors are throwing in the free phone promotion here or there.  But Cricket has somewhat escalated a price war with a $40/month unlimited single line price. The promo duration ends on April 12th. The fine print is that the plan price is only for one year.

Surprisingly, competitors haven't matched as the equivalent plan is still $50.  Historically, the sub activity has  usually occurred in the 1st and 3rd quarters.  It's hard to say whether each competitor will be the instigator for more plan action but there is a balance between acquiring more subscribers while showing higher ARPU/ARPA/ABPU trends and increasing margin AND decrease churn. It's a tall order.

Distribution will define further growth opportunities. MetroPCS can certainly ride the T-Mobile postpaid's coat tails as the company expands into the hinterlands with its 600 MHz spectrum.  Similarly, Cricket can expand its national brand footprint as it gains more dealers.  It's likely that AT&T and T-Mobile will dominate the prepaid scene as Verizon's focus has always been the more lucrative postpaid.  Sprint's tight corporate budget also suggests that its acquisition money should heavily favor postpaid to further its turnaround story (I'm still waiting for Virgin Mobile's 'game-changing' contribution.  Lastly, America Movil will likely continue to shed lifeline customers with incremental growth in the Walmart exclusive Straight Talk.  Let's see what happens.  

AT&T Prepaid - 4Q17, A Strong 2017

AT&T's reinvigorated prepaid group has been plugging away after the Leap Wireless (Cricket) acquisition and integration in 2014. Rather than keep the then AT&T Aio flanker brand, Cricket's name had better traction in the prepaid sector.  While AT&T is more than just the Cricket brand (remember GoPhone?), Cricket brings in the lion's share of the additions.

Overall, the Cricket unit has been a positive development, adding over 1.3 million (M) subs in 2015 and over 1.5M in 2016.  Its playbook mirrors its chief rival, MetroPCS which was acquired in 2012. The regionally limited MetroPCS brand expanded along with the T-Mobile national footprint, increasing the brand's distribution reach.  This has also been the case as Cricket increased its footprint and distribution.  With about a 1.5 to 2 year head start, MetroPCS has been the industry prepaid net add leader, with more than 1.3M in 2015 and over 2.3M in 2016.  Given this trajectory, one would expect them to lead in 2017.  However, for 2017, the overall prepaid net add leader is AT&T with just over 1M net adds to T-Mobile's 855 thousand.  



The overall trend, based on the leaders' numbers, is that prepaid isn't growing as hot as it was several years ago.  4Q17's numbers for both companies seem anemic in a Year over Year comparison.  Yet more confounding for industry watchers, AT&T has incorporated prepaid IoT (they say vehicle connectivity) into its 3 and 4Q17 numbers. Those account for 152 thousand additions. If we remove those numbers, AT&T still wins 2017 with 861 thousand, barely edging out T-Mobile's prepaid group.

Looking ahead to 2018, there are two things I'm looking for in the near term:

1. 1Q18 net add numbers: Generally, carriers' 1Q numbers have been the year's strongest. Will these numbers be 2016 or 2017 levels? As of this writing, Boost, Cricket and MetroPCS's lead offer are similar - 4 lines for $100. 
2. AT&T Prepaid IoT ramp:  AT&T has been building IoT connected vehicle business with auto manufacturers for several years now with the fruit of embedded connections for every vehicle. As new models and more manufacturers get online, the prepaid IoT numbers should increase. Churn and ARPU for this segment should be interesting if broken out (ideally).        

Verizon Prepaid - 4Q17 (More Cowbell, er ARPA!)

Verizon's prepaid group is going through a roller coaster ride.   For many quarters, the company's prepaid group had been losing subscribers at an alarming rate. From 1Q15 to 2Q16, the losses totaled 758,000! A momentary hike of 83,000 net additions in 3Q16 reversed in the next two quarters of a low 26,000 losses. It seemed that with new plans, the prepaid group was going to be on the upswing with positive growth in 2Q and 3Q17.  However, 4Q17 saw subscriber losses again.




To be fair, Verizon's retail wireless business is predominantly postpaid. Prepaid only accounts for less than 5% of the company's retail subscribers.  However for 4Q17, Verizon stated that its 184,000 prepaid sub losses were predominantly basic phone subscribers as it "deliberately reduced" focus in this area.  This makes sense as it's been the overall prepaid sector trend to cater to higher-ARPU bearing smartphone plans.  Some can argue that it took too for Verizon to come around to switch its tactics, in order to address an increasingly lucrative prepaid sector.  AT&T and others have long argued that given the no-contracts postpaid environment, prepaid and postpaid ARPUs were somewhat converging.  

As evident by Verizon's prepaid plans, they are indeed trying to boost ARPU.  Though the minimum single line monthly is $40, the important point is that the company is emphasizing additional lines (as with competitors) to increase ARPA. It's clear that Verizon is not going to be the least cost provider but as wireless veteran observers know, that's not their strategy.  As with postpaid, the company conveys to the market that it is a premium provider with a formidable network.




What will 2018 hold for the Verizon prepaid group? I have to think that there will continue to be basic phone losses but when will the smartphone plan additions outweigh the losses?  The prepaid subscriber base currently sits as about 5.4M, does the company care about increasing the sub count or keeping it level while trading it for newer subs that boost overall revenue? I suspect the latter.

AT&T Moves to Negate T-Mobile's Netflix Differentiation w/ open HBO

In its Un-carrier X, Netflix on Us, T-Mobile needled AT&T.  They cited  in their conference call that AT&T Unlimited Plus customers were the only ones who received HBO for free or one had to buy it throw the over the top DirecTV Now service.  This obviously brought up the disparity in how AT&T treats their unlimited customers.

AT&T Unlimited Choice users are probably more price sensitive as there is a $30 price gap in a single line vs. the Plus variety. Moreover, video is SD vs. HD (Stream Saver) and downlink throughput is capped at 3 Mbps, slower than Cricket's 8 Mbps (don't get me started on this).  Now AT&T has chosen and (to me) in a reactive fashion to Netflix on Us now allows Choice users to get freebie HBO channel streaming (Game of Thrones season is over, right?). Another silver lining to those Choice users who may have DirecTV or DirecTV Now is that they save the HBO monthly fee ($5?).

Clearly, comparing HBO to Netflix is not an apples-to-apples comparison as there is a greater content library behind Netflix. Still, it reduces and blunts any marketing messaging that T-Mobile may have in the works at retail.  Will HBO necessarily stop the T-Mobile customer acquisition train?  That is unlikely but it is a reactive anti-churn move that AT&T had to eventually implement as Q4 selling starts.

T-Mobile Goes 5G, It's Expected Except with its 600 MHz

The wireless path for all wireless carriers beyond LTE is 5G. Everyone in the industry knows this.  Conventionally, the spectrum associated with 5G talk has been in the millimeter wave (mmW) realm.  That's why Verizon purchased XO because they had 28 and 39 GHz.  That also can be said with AT&T's purchase of FiberTower (24 and 39 GHz) and its interest in StraightPath (28 & 39 GHz).  There are many on-going trials on the vendor side and carrier side as well in mmW bands.   The width of the mmW spectrum availability is in the order of hundreds of GHz rather than the tens of MHz in each that carriers have today.

T-Mobile has also pursued mmW 5G trials. In September '16, Ericsson announced it achieved 12 Gbps   with T-Mobile in the 28 GHz band.  So with T-Mobile's announcement that it seeks to deploy 5G in the newly acquired 600 MHz spectrum (31 MHz covering 325M POPs) is a true departure from the conventional 5G talk and norm.  Why?

While 5G is the front and center of the announcement, what is lost is that T-Mobile seeks to use some of that spectrum for LTE deployment.   In the 1Q17 earnings call, Neville Ray (CTO) touted that the company wanted to put the spectrum to use quickly, with buildout ready by end of year 2017 along with handset support (Samsung & another vendor).  Two points that T-Mobile have shrugged off:

1) The spectrum needs to be cleared.  T-Mobile's initial 600 buildout will be where there are no clearance issues. It's also the geography where their 700 doesn't cover, so apparently it's a win.  The implication is that it's closing the coverage holes and getting to network and geographic parity with AT&T and Verizon, negating the "Verizon map" marketing advantage.

2) 600 ecosystem cost and support is costly.  It's clear that T-Mobile will be the first mover in 600 LTE and they painted similarities to delving into AWS spectrum.  They claim it's no different.  However, T-Mobile's modus operandi is and has always been pushing the technical and marketing envelope.  It has a good track record.

So the conventional playbook says that 600 will bring geographic and network parity against AT&T and Verizon.  More importantly, it will expand T-Mobile's sales and distribution footprint to greenfield markets traditionally served by AT&T and Verizon because they were the only game in town.

BACK TO 5G

To T-Mobile's credit, they're not ahead of the market as they anticipate buildout in 2019 with commercial service ready in 2020 along with a national footprint.  This is not aggressive but along the conventional standards and industry timeline.  Again, what is unconventional is its use of 600 MHz, unexpected in many tech circles.

The problem with this and conventional 5G talk is from a speed perspective is that it won't make the multi-Gbps targets as so many trials have demonstrated.  Moreover, 31 MHz is going to be divided with its earlier 600 LTE implementation.  This 5G implementation will likely pick up more spectral efficiency in delivering speed relative to LTE but again, as standalone 5G, the operating bandwidth is limited.  So what's the play?  There are two for now.

1) In a conference call with industry analysts, Neville and his network execs talked up rural IoT.  The argument goes that standard 5G mmW IoT is limited by the spectrum and really a play in urban areas due to the propagation characteristics.  While it's out of character with over three years of direct consumer wins, this feels more like a business play.  To be sure, T-Mobile has kicked off its IoT effort in January 2017 and it shouldn't end with 3G and LTE (NB).  IoT connected numbers in the billions and  every carrier wants a piece of the pie. With low or no per unit acquisition costs along with sustained recurring revenue, each connection has an excellent (industry term) customer lifetime value.  The money potential will preset itself in 2020 and beyond but for now, the announcement gives T-Mobile business and IoT force some roadmap to present compared to AT&T and Verizon, which have a substantial lead.

2) T-Mobile's 2020 national 5G network target is a pure marketing win. Again with conventional 5G talk with mmW, this conventional implementation will not have a 5G national footprint. While that is true, competitors can claim greater 5G speed compared to T-Mobile's 600 5G speeds.  The only caveat is that T-Mobile is likely going into mmW 5G as well.  So looking ahead, another related component will be the ongoing mmW spectrum acquisition race.

In closing, all the industry talk, other spectrum bands are likely to be refarmed into 5G.  I'm counting on Sprint to announce its 5G foray using its 2.5 GHz resources soon.

Bullet Point Analysis: The Implications for Verizon Unlimited

WHAT IS IT?

After many years, Verizon brought back an unlimited dataservice plan announced on Sunday, February 12, 2017 and available February 13.   

Here are the monthly plan details:

• Single line - $80 for unlimited data, talk and text on your smartphone with paper-free billing and AutoPay.
• Two lines - $120 ($60/line)
• Three lines - $160 ($53.33/line)
• Four lines - $180 ($45/line)
• Additional lines after 4 lines, up to 10 lines, for $20/line
•  Mobile Hotspot with 10 GB of LTE data is included at no charge (after 10 GB at 3G data speeds)
• Unlimited calling and texting to Mexico and Canada and up to 500 MB/day of 4G LTE roaming in Mexico and Canada
• HD video streaming
• 22GB is the data threshold when Verizon can perform network prioritization if there is network congestion.

In conjunction with the service plan an aggressive free handset strategy is in place to win new (and perhaps old Verizon customers back).  The list includes flagship smartphones - iPhone 7, iPhone 7 Plus, Google Pixel, Moto Z Droid, Moto Z Force Droid, Samsung Galaxy S7, Samsung Galaxy S7 edge, or LG V20. 

However, the free smartphone is only available within a list of 15 eligible devices: iPhone 6, iPhone 6 Plus, iPhone 6S, iPhone 6S Plus, iPhone 7, iPhone 7 Plus, Samsung Galaxy S6, Samsung Galaxy S6 edge+, Samsung Galaxy S7, Samsung Galaxy S7 edge, Samsung Note 5, LG G5, LG V20, HTC 10. 

A $5/month option is available for older devices but the list is shorter: Apple iPhone SE, Samsung Note 4, Samsung Galaxy S5, LG G4, LG V10, HTC M9.

BACKGROUND

Verizon has been the brunt of switching aggression from T-Mobile and most recently Sprint. With the largest postpaid base among the top four carriers, Verizon is the low hanging fruit. And with continued high porting ratios reported by T-Mobile and movement from Sprint, Verizon had to do something.  Moreover, it lacked an unlimited plan that T-Mobile and Sprint harped on in its advertising to win over Verizon customers.  Its large postpaid base and reluctance to offer an unlimited product also raised questions, particularly in the investor community, on whether its venerated network could even handle increasing data traffic within its current spectrum portfolio.   

With a dire competition picture for many quarters and the messaging set in place by former CFO Fran Shammo that subscribers don’t want or don’t need unlimited coupled to preserving good margin, a Verizon unlimited offering is surprising. However, Mr. Shammo has retired and a new CFO Matt Ellis and the new UK-transplant CEO (Ronan Dunne – ex O2 CEO) may have been the impetus to changing Verizon’s unlimited strategy.  Rather than Lowell McAdam’s face (or John Stratton’s or any other long time Verizon executive) to introduce the unlimited plan, it was Mr. Dunne and Nicky Palmer (Network Leader (read network CTO) as fresh PR faces.

ANALYSIS

WHAT’S IN IT FOR VERIZON?

• Retention (Stopping the Bleeding): The port outs to T-Mobile and Sprint have impacted Verizon’s bread and butter postpaid sub base.  A new unlimited offering will placate those legacy/grandfathered subscribers who feel pushed out with increasing onerous conditions to keep their grandfathered unlimited plans. Moreover, with a valuable business segment that may want monthly price predictability without data pooling, an unlimited plan will lock in loyal accounts. 
• Switching (and switching back): The free smartphone offer is attractive for former Verizon customers who left for competitors within the last 2 years (e.g., for trade-in, the iPhone 6 is a little over 2 years old).  Against T-Mobile, the advertised gap is only $20 (though T-Mobile One is tax/fee inclusive). $20 may be enough for less price sensitive customers and Verizon loyalists to return. 
• Network Reputation:  Verizon has always done well with the ‘map’ that shows its national coverage lead but T-Mobile has been very vocal specifically about its network parity (covered LTE POPs) and faster download data throughput against Verizon’s premium network message.  By offering an unlimited product and highlighting leadership in small cells and sprinkling in leading edge LTE technology, Verizon is stating that its network can handle the network traffic.  Not to be forgotten is the delayed LTE-U (or LAA) impending commercialization likely in 2017 that will help the load.
•  Feature Differentiation: Unlike the Verizon of old where customers need to pay extra to turn their phones into a mobile Wi-Fi hotspot, a healthy 10GB is included. Against T-Mobile or Sprint, this isn’t much but against AT&T, it stands out.  A nuanced jab at T-Mobile is that video may be streamed in native HD against T-Mobile’s extra fee to get HD capability.
• Cost Containment: The new unlimited plan has two caveats – electronic billing and autopay.  These features are very much prepaid in nature and in a macro sense, speaks to cost savings of generating paper bills. Automating the payment process streamlines any handling for paper checks as well as in-store bill payment handling. As in prepaid, autopay is a nice anti-churn measure.

COMPETITOR COMPANIES' IMPACT?

• Sprint: Price leadership has been Sprint’s hallmark for a year or so.  This has been their strategy to turn itself around from negative losses to positive net addition growth.   The surprising Sprint promotion announced a day ahead of Verizon’s announcement (5 lines of unlimited service for $90) makes a lot of sense now.  Keeping a lid on price moves is difficult in this industry and the coincidence of Sprint’s promotion suggests to me that they got wind of Verizon’s offering ahead of time.  Sprint will still get the price seekers but may be blunted somewhat for those Verizon loyalists that haven’t been pulled the trigger to the Sprint camp.  With the new Sprint promotion, I’d expect that a marketing campaign be launch pointing out that Sprint’s unlimited is half that of Verizon’s. 

With thinner margins, Sprint’s financial challenge is cannibalizing revenue from the existing base that wants this less expensive offer.  Yet the other side of the coin is that they could lock these migrating plan customers in for another two years.

• T-Mobile: While I characterize Sprint as the price leader, T-Mobile is, in my view, the value carrier and the biggest continued threat to Verizon.  With an effective network parity message and an expanding national LTE footprint, the number three carrier has so much momentum that Verizon will find it difficult to fully stop T-Mobile. Given a public target to increase national distribution doors (in areas where it never operated) in 2017, I believe Verizon will continue to be negatively affected but perhaps slightly diminished porting.
• AT&T:  With only an unlimited plan only available as a bundle with DirecTV, AT&T is the odd man out amongst its peer group without a standalone product in its plan portfolio.  AT&T’s strategy has always been to cross and upsell to increase revenue from its existing base, and in turn bring higher margins (EBITDA service margin, in the Verizon range).  To veer from this strategy will be tough as it has garnered quite a bit of criticism with quarterly phone customer losses. Though AT&T claims many of those phone losses are feature phone customers, Verizon has been its longtime nemesis as both carriers contend for the premium customer, consumer and business. History has shown that it responds almost tit for tat against Verizon and have largely ignored plan moves from Sprint and T-Mobile.  However, there must be a lot of debate happening in Atlanta and Dallas on the course forward.  My view is that AT&T must respond and improve on its unlimited offering as it is the most vulnerable.  Though the wireless-DirecTV unlimited wireless offer sets the same price point for 4 lines at $180, there’s fine print. First, month one and two are at $220 and only at month three is the 4^th line considered free.   More importantly, after line 4, additional lines are at $40/month, clearly short of Verizon’s (and T-Mobile’s) $20/month.  If not to save the premium consumer base that has been slipping for several quarters, AT&T needs an offer to its coveted medium and enterprise business segment that has been fueling sub growth and offsetting those consumer losses.