Friday, February 17, 2017

Did AT&T Miss Boat on "Unlimited?" Not Really

Some will quickly look at AT&T unlimited service pricing as compared to plans offered by T-Mobile US, Sprint and Verizon and conclude that AT&T “made a mistake” by not pricing more aggressively. Most likely, AT&T is pricing at a point it believes best balances protection of its existing customer base with the ability to compete with the other offers.

Some will note that the cost for a single line is higher than comparable offers from the other three providers, but the four-device plan is equivalent to Verizon's offer, and priced above the plans offered by T-Mobile US and Sprint. That would be consistent with AT&T’s larger strategy of protecting its postpaid, multi-line accounts and allowing “lower value” accounts to churn off.

As in most saturated markets--especially those that are essentially zero-sum markets--the providers with the largest market share have the most to lose, but the least to gain, from marketing wars including price attacks.

In any very-competitive zero-sum market, the suppliers with the largest account bases have much more to lose than gain, once marketing wars erupt, simply because there is no pool of new customers to get, and all changes essentially involve market share shifts.

The problem is easy to illustrate. When voice over Internet Protocol first began to get traction, it might have seemed logical to argue that legacy voice providers should immediately move to match features and prices offered by the VoIP attackers.

That would not have been a new suggestion. Basically, AT&T and others faced precisely the same problem when competition in long distance services erupted in the 1980s: how aggressively should market leaders move to match features and prices offered by the discounting attackers?

AT&T and others essentially chose a strategy of harvesting profits as long as possible, matching rival offers to the extent necessary to slow the rate of customer and revenue decline, but not enough to match those offers head to head.

In the case of VoIP, most legacy voice providers essentially chose not to match the VoIP offers head to head, but to maintain prices on the legacy products and accept market share loss over time.

In other words, the strategy is to preserve prices and profit margin at the expense of market share, with a clear understanding that, over time, the legacy product market will reform, at lower overall prices and lower margins. In the meantime, total return is better when a slow decline (without slashing prices and profits) is the business objective, not an effort to maintain share.

There are other obvious implications to be gleaned from the present mobile marketing wars. In effect, T-Mobile US and Sprint now have embraced strategies of permanently lower levels of revenue and lower prices, with more value. It is long distance and VoIP all over again, in the mobile services segment.

The market for mobile access is reforming, and the “best” strategy for Verizon and AT&T is to maintain the slowest possible rate of market share decline, with the lowest-possible price declines, for as long as possible, while replacement revenue streams are built.

Neither Verizon nor AT&T want to be the price leaders. They will respond, in a general sense, to price and value attacks, without attempting to do “anything” necessary to maintain market share. The objective will be to achieve a modest decline rate, for as long as possible.

After all, the attacks will increase, in the future, as Comcast and Charter enter the market, even as AT&T and Verizon fend off current attacks from T-Mobile US and Sprint.

This is a market positioning problem we have seen before, with rather consistent fundamental strategies on the part of market leaders and attackers.

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