AT&T Offers T-Mobile Users $450 to Switch

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Wireless phone giant AT&T Inc. (NYSE: T) is offering current customers of T-Mobile US Inc. (NYSE: TMUS) up to $450 to switch carriers. The offer includes a $200 credit to a customer’s phone bill and up to $250 as a trade-in on an old phone for a new AT&T phone.

In the third quarter of 2013, T-Mobile added a net 672,000 subscribers to bring its total number of subscribers to around 45 million, still in fourth place, but gaining on third-place Sprint Corp. (NYSE: S). Sprint reported a subscriber total of 54.88 million at the end of third quarter, down from 55.96 million at the end of the 2012 third quarter. Wireless giant Verizon Communications Inc. (NYSE: VZ) with 101.2 million subscribers and AT&T with 109.5 million remain well ahead, but AT&T does not want to see its numbers continue to erode.

T-Mobile has directed its recent promotional campaign right at AT&T, Verizon and Sprint, offering customers smartphone upgrades every six months, an unlimited 4G data and no required contract. That offer has resonated with users and is the driving force behind T-Mobile’s success in getting customers to switch.

Industry observers expect T-Mobile to unveil a new offer to potential subscribers at next week’s Consumer Electronics Show. The so-called Uncarrier plan will offer to buy out the early termination fees for customers who switch to T-Mobile.

What T-Mobile hopes to achieve is a higher churn rate from which it expects to reap the benefits. That is completely counter to the long-standing efforts of wireless carriers to reduce churn. If locking in customers is no longer possible, the big three carriers could be in for big trouble.

That is not say the big two (excluding Sprint) cannot fight back. They could cut their rates, offer similar plans or some combination of those to stop the bleeding. But that reduces their average revenue per user (ARPU), which cuts into margins and, ultimately, profits.

AT&T’s action Friday is meant to steal a bit of thunder from next week’s expected T-Mobile announcement. The new offer from AT&T may sting, but it is not disruptive. T-Mobile is the disruptive force in the wireless carrier business today because it really has nothing to lose.