AT&T's new device financing plan weighs on revenue
By Marina Lopes
WASHINGTON (Reuters) - AT&T Inc's quarterly revenue rose a weaker than expected 1.6 percent as cheaper service plans offered to customers who forgo subsidized cellular phones cut into margins.
Faced with mounting pressure from competitors, AT&T has unbundled service and device charges, and slashed its family data plan and shared value plan prices as it tries to attract customers in a nearly saturated market.
"What we saw happen throughout the second quarter were very aggressive promotions by our competitors but all the while our churn decreased," Ralph de la Vega, chief executive of AT&T mobility, told Reuters.
"We are confident that what we saw in Q2 was part of the transition we had to make to go from service to equipment revenue in NEXT," he said, referring to a pricing plan that allows customers to pay directly for their devices in exchange for lower service pricing.
The plan has resulted in a lower average revenue per user, but higher equipment revenue, as customers take on the majority of the burden of paying for their devices.
Wireless service revenue decreased 1.4 percent in the second quarter, while equipment revenue grew 44.8 percent.
AT&T expects two-thirds of its customers to be on the plan by the end of the year.
"AT&T has quite aggressively moved its existing base of customers in contract to the new plan. It is a fairly predictable shift and over time it should be a positive one for AT&T, but it has an unpleasant short-term impact on results, said Jan Dawson, chief analyst at Jackdaw Research." Continued...