The Domino Effect: AT&T and T-Mobile Jump on the Unlimited Bandwagon

| Feb 20, 2008 | U.S. Wireless Research Portal | Competitive Intelligence Report

| Analyst: Bill Ho

Current Perspective: Neutral/Positive
Vendor Importance: High
Market Impact: High

Event Summary

Within hours of the Verizon Wireless Unlimited plan announcement, AT&T and T-Mobile quickly respond with $99.99 offers of their own. With Sprint and Alltel yet to weigh in, inquiring minds wonder if further escalation is in the cards.

Analytical Summary

• Current Perspective: Slightly positive on AT&T and T-Mobile’s incredibly rapid response to Verizon Wireless’ earlier announcement; both carriers joined the $99.99 unlimited voice calling band-wagon within hours of their rival’s announcement. Essentially they had little choice, as without offering high-value users this option they would instantly become subject to customer defections. Ironically, as most carriers (other than Sprint and Alltel) are now offering the same voice price, none of them is likely to gain each other’s customers, and in fact they all stand to lose some revenue at the high-end through plan cannibalization.

• Vendor Importance: High to AT&T and T-Mobile as they simply had to react. While none of the carriers has that many high-end customers needing unlimited voice and willing to pay $100 a month (in fact estimates are that they only amount to about 10-15% of their subscriber bases), they simply could not afford to sit around and hope for the best. There is also a possibility of up-selling some customers that are already on high-end plans in the $70-80 range.

• Market Impact: High on the wireless services segment, as high-value customers are a key segment for high end voice minute plans. However, part of the impact of Verizon Wireless’ announcement was on the data side, where new voice/data bundles brought down the price of data/email on a BlackBerry or PDA. AT&T, who had already recently revamped its data and messaging plans, has not changed data pricing with this announcement and doesn’t offer these kinds of bundles, so Verizon Wireless still has an edge for business data pricing. T-Mobile already had voice/data bundles that resonate well. Now the pressure is on Sprint and Alltel to follow with their own competitive response.

Recommended Competitor Actions

• Verizon Wireless should do nothing as AT&T merely matched its offerings and despite T-Mobile’s addition of unlimited messaging, T-Mobile is not a direct threat to Verizon Wireless as their demographics differ. However, Verizon Wireless should get ready for Sprint’s response as they are more likely to push data value as their differentiator.

• Sprint and Alltel should look into providing a way to add family lines to share unlimited calling where it will not wreak havoc on margins. This is a time when additional line costs may increase from the ultra-low $10 per month.

• Sprint should work on a real differentiator as a competitive response instead of merely matching AT&T and Verizon Wireless. At a minimum, it should match the T-Mobile offering as the current market perception of Sprint has dipped below AT&T and Verizon Wireless in many areas. However, it should not be looking at changing the playing field merely with price points; rather, it should consider adding data access bundling for the same price point.

• All carriers should be looking at credible and defensible avenues to increase the price point for unlimited calling to pull back from the downward spiral of a pricing war.

Recommended End User / Customer Actions

• Power callers at Verizon Wireless, AT&T and T-Mobile should sit tight and go with the unlimited calling plans now that their carriers have made them available. If these customers are on higher-priced plans, they should migrate down to take advantage of the savings. However, in some cases, the contracts may be reset for another two years.

• Sprint and Alltel power users should also sit tight as there will be a definite competitive reaction coming within weeks if not a week to the customer’s benefit.

CLIENTS ONLY

Current Perspective

Competitive Positives and Concerns

Recommended Vendor Actions

Recommended End User / Customer Actions

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