AT&T Inc. (T) Price Cut Hurting Network Operators Stock Price

AT&T Inc. (NYSE:T) price cut, announced on Sunday, resulted in the decline, in share price, of the United States mobile operators on Monday as investors became cautious over the fact that Verizon Communications Inc. (NYSE:VZ) and other mobile operators would also react to this price cut. The mobile operator reduced its monthly fee for 10 gigabytes monthly data share plan for families to $15 per device, from $40.

Shares of AT&T declined 4% following the price cut in the monthly fee for a data plan from $40 to $15. Verizon shares declined 3%, T mobile experienced a sharp decline of 4% while Sprint Corporation (NYSE:S) came down 5%.

It’s just the start

According to some analysts, the price slashing strategy of AT&T could trigger other operators like Verizon communication to come up with their own price cuts, which would in turn take its toll on the profits across the industry. AT&T and T-Mobile have been introducing competitive offers to poach each other customers, for months now.

Jonathan Chaplin, an analyst with New Street Research told Reuters “Now we’re seeing real evidence of increasing competition having real cost to the industry.” The analyst feels that AT&T has adopted the strategy to regain market share lost to rival T-Mobile.

According to Chaplin, the drop in price will slash the 0.5% to 1% from AT&T Inc. (NYSE:T)’s EBITDA 2014, and 1% to 2% from 2015 EBITDA. However, the price cut by AT&T is just one step that could bring down the prices across the industry, notes Chaplin

“If this was the end, we wouldn’t care and neither would the market,” Chaplin said, but added: “World War I started with one archduke getting assassinated.”

Intense competition

Last year, T-Mobile introduced a range of aggressive discounts that triggered the customer growth for three quarters after four years of losses, and took away substantial amount of customers from AT&T network.

On January 3, AT&T offered to pay consumers if they replace their T-Mobile connection with AT&T Inc. (NYSE:T). Sprint, the 3rd largest operator in the United States, offered huge discounts for family and friend group. Raising the intensity, T-Mobile came up with an offer to cover huge exit costs for consumers switching to its service.