Here’s AT&T’s plan to grow now that everyone has a mobile phone

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Credit: AT&T

AT&T reported middling financial results for the third quarter with revenue of $31.5 billion leading to net income of $3.63 billion. Those sales are essentially flat from the same quarter a year before as is income. But behind those numbers is a shift occurring as AT&T’s big bet on wireless starts paying off.

AT&T’s saw wireless revenues rise by 6.6 percent year over year with data revenues up 18.3 percent. Wireline declined as a percentage of revenue by 3 percent. But given the saturation of the U.S. mobile market, AT&T is not taking its wireless success for granted. Instead it’s figuring out how to get existing customers to spend more. On the call it touted its growing base of smartphones (customers with smartphones spend almost twice as much as those with feature phones) and the take rate of its new shared family plans announced in August.

In the five weeks since the plans were announced and the quarter closed, 2 million of AT&T’s 44.5 million smart-phone customers signed up. Those plans, that charge customers a set fee each type of device on the plan and then add on a bucket of minutes have helped goose the operator’s average revenue per user (ARPU) by 2.4 percent. This means the average AT&T customers pays $65.20 per month for their wireless plans. The genius of these plans from AT&T’s perspective (and Verizon’s, which has them too) is that when customers pay AT&T for their device (AT&T uses a sliding scale so the more data you buy the less you pay per device) they are offsetting the loss of voice and texting data as many of those services go over the top.

Ralph de la Vega, president and CEO of AT&T Mobility, notes that customers are choosing those plans, and when they do they are choosing fat plans with more than a third taking the 10 GB plan. In a big benefit to AT&T more than 15 percent of the shared plans subscribers are changing over from unlimited plans. From de la Vega’s perspective, the plans may even end up being accretive to AT&T’s bottom line, especially going into the next quarter when people buy tablets, add those devices to the plan and perhaps boost their data buy.

“The ARPU we were expecting from these plans is higher than what we expected,” said de la Vega. “They could be accretive.” He later added that, “the more customers we have on usage based plans, the better we are.” And as the overall market for wireless phones in the U.S. becomes saturated with most adults owning a phone, the challenge for AT&T and Verizon (s vz) will be how they can get those customers to pay more.

The new shared plans are one element of that, although those were designed to keep people from paying less, but AT&T is set to announce new services on top of its smartphones and wireline businesses with its Digital Life business. De la Vega promised that on Nov. 7 analysts would learn how AT&T plans to connect homes and cars and offer compelling services such as home automation and security on top of AT&T’s access business in a bid to get customers to sign up for new services.

So when analysts asked about AT&T’s lackluster ability to add new subscribers during the quarter (it added 151,000 post-paid customers) when compared to Verizon’s ability to snag 1.5 million post-paid net adds, de la Vega assured them that AT&T wasn’t playing a net adds game. Saying AT&T wasn’t “reliant on connecting more people,” in order to boost revenue he explains that the services would drive more data usage and thus help AT&T’s sales. That’s one way to deal with a saturated market.

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The overall plan will be to raise what customers pay without customers realizing it.

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