AT&T Wireless Services Inc. last week introduced an aggressive national rate system that eliminates long-distance and roaming charges.
The AT&T Digital One Rate plan includes three pricing options: 600 minutes for $90, 1,000 minutes for $120 and 1,400 minutes for $150. Those rates equate to per-minute airtime rates of between 10 cents and 15 cents. Additional minutes are charged at 25 cents per minute.
The AT&T Digital One Rate plan initially is available only with Nokia Corp.’s 6160 and 6162 dual-mode, dual-band handsets, which work with Time Division Multiple Access technology at 1900 MHz and 850 MHz as well as analog networks. The handsets are priced at $200 and $230 respectively.
The rate plans only are available when customers sign a one-year or two-year contract. A $50 credit toward the price of the handset is applied with two-year contracts, said the company.
Dan Hesse, president and chief executive officer of AT&T Wireless, said the plan initially is designed to appeal to business travelers, heavy long-distance and roaming users and people who frequently are away from home and might use wireless service as a replacement for landline service. The company also said it hopes to migrate minutes to wireless from landline and long-distance use with the all-inclusive rate plan. AT&T Wireless in the past has said that while it will provide service to all types of customer segments, its goal is to attract high-end users.
Many analysts say the plan is geared toward high-end users, with those users who frequently roam deriving the most value from the plan. Many carriers already offer big buckets of minutes, and long-distance charges are relatively inexpensive, said John Bensche, an analyst at Lehman Brothers. The real key to AT&T’s plan, he said, is that it eliminated roaming surcharges.
Whether customers will be willing to sign a contract, which many carriers have stopped requiring, and whether they will be willing to invest in a new handset will be key factors to the success of the plan, said Perry Walter, telecom analyst with Robinson-Humphrey Co.
AT&T Wireless stands to take a hit on roaming charges from other carriers’ networks, but the company said it believes the vast majority of calls still will be made from within its network, and that it will eat the cost of calls made from outside its network. Thirty-five cents is considered a favorable roaming rate in the industry, said one analyst, leaving AT&T to pay half to two-thirds of each roaming minute.
Analysts also said AT&T’s revenues could be impacted by migrating existing high-end customers who spend hundreds of dollars a month to lower price plans.
“Historically, AT&T has suggested to the public that they’re going to compete on brand and on quality,” said Richard Siber, director of Andersen Consulting’s worldwide wireless consulting practice. “I think what they’re recognizing now is that it was not competitive for them, and they needed to compete with the initiatives that Sprint (Spectrum L.P.) and Nextel (Communications Inc.) directly have put forth in the marketplace, which is very, very aggressive pricing maneuvers and initiatives such as no roaming, one-second billing and large buckets of minutes.
“I think AT&T saw that they were losing this battle and that they had to do something aggressively,” continued Siber.
Analysts say the announcement could put pressure on AT&T’s competition, primarily Sprint PCS, which is building out a nationwide personal communications services network based on Code Division Multiple Access technology. Sprint responded to AT&T’s announcement by saying, “Sprint PCS is flattered that, once again, AT&T is imitating the industry-leading marketing efforts of Sprint PCS.”
Tom Murphy, a spokesman for Sprint PCS, said the company has had positive feedback on its Home Rate USA and Toll-Free USA plans and does not plan to make any changes to its rate plans in response to AT&T’s announcement.
But Bensche said other carriers, including Sprint, may have to match AT&T’s roaming rates in order to retain subscribers. Bensche said Nextel will not be affected as much by the rate plans because “their target market segment is not so much a roamer as it is a mobile worker who stays in one city or region and values the dispatch functionality of Nextel’s service.”
If AT&T’s competition does react by cutting roaming rates, Bensche said AT&T may not achieve the growth in high-end users that it is aiming for and could end up raising roaming rates later.
“It is our sense that AT&T perhaps went a little overboard in cutting their prices,” said Bensche. “They are going to leave a lot of money on the table with this sort of rate plan, and we are doubtful that they will gain any significant share or change their customer mix to any great extent because of this.”
AT&T roaming partners, however, could benefit from the arrangement, said Bensche. Eliminating roaming charges could encourage more subscribers to roam while AT&T will continue to pay the same wholesale roaming rate to its partners.
