AT&T Is Scared of T-Mobile

Wireless carriers are always trying lure customers by touting the faster networks and better monthly plans, and AT&T and T-Mobile are in the middle of a fight for both right now.

Source: T-Mobile.

Expanding the wireless domain
Reports surfaced this week that AT&T may be considering purchasing Verizon Communications' 700MHz A block wireless spectrum, the same block T-Mobile is likely pursuing. T-Mobile just raised about $4 billion through a second stock offering and sale of senior notes, which the company could use in bidding for the wireless spectrum. If AT&T and T-Mobile both want the spectrum enough, they could start a bidding war that ends with the spectrum going to the one with the deepest pockets.

Verizon paid more than $2 billion for the spectrum block, so it likely will look for at least the same amount, if not more. The company has been quick to note that if it doesn't get the price it wants, it'll use the spectrum for its own network. BTIG analyst Walter Piecyk recently said T-Mobile could spend about $3 billion purchasing spectrum from Verizon.

T-Mobile is the smallest of the four major U.S. wireless carriers, and buying up additional spectrum would allow the company to handle additional customer data usage. For AT&T, the purchase could mean holding on to as much wireless spectrum as possible to retain an advantage over the smaller -- but quickly growing -- T-Mobile.

Pricing wars
Buying up spectrum isn't the only way the two carriers may battle it out. This week AT&T announced that starting Dec. 8 it will reduce monthly charges for certain no-contract subscribers. The plan is called Mobile Share Value and customers who buy a phone without a subsidy, sign up for AT&T Next, or bring their own device to the network will pay up to $15 less per month than they previously did.

The move is an effort by the carrier to compete directly with T-Mobile's no-contract plans. But as The Verge pointed out, some of the AT&T plans with multiple users on a shared plan will actually see their monthly prices go up. Overall, though, the pricing should help some AT&T subscribers save money, but still won't quite match T-Mobile's pricing deals.

Foolish final thoughts
AT&T's change in pricing strategy for some customers shows just how much T-Mobile is starting to influence the other U.S. wireless carriers -- no matter how big they are. T-Mobile is still the dark horse right now, but its pricing model has started to resonate with customers, and in the third quarter of this year it gained more than 1 million net customers, including prepaid subscribers.

T-Mobile still falls short of both AT&T's network coverage and number of customers, but AT&T's pricing change and its possible competitive bid against T-Mobile for wireless spectrum shows that the "uncarrier" strategy may be paying off. Investors should watch how the spectrum bid plays out and also look for AT&T's next quarterly earnings for any news on how the contract changes have helped or hurt the company. AT&T may have made the changes simply in order to keep current customers from jumping ship, rather than trying to win over new ones who are looking for a better mobile plan deal.