AT&T Raises Prices on Wireless Plans to Address Higher Costs

(Bloomberg) -- AT&T Inc. is raising prices on older mobile-service plans in an effort to squeeze more revenue from customers and blunt the effects of quickening inflation.

The price increases mark a high-profile reversal for an industry that has mostly competed for new customers with discounts, free phones and low-priced family plans -- even after shrinking to a three-player market with the purchase of Sprint Corp. by T-Mobile US Inc. in 2020. 

AT&T’s increases are the first for such plans in three years. The Dallas-based carrier is raising monthly fees on those older packages by up to $6 a month for single-line customers and up to $12 a month for families, a spokesman confirmed Tuesday. Staffers in multiple stores were informed of the changes this week and are offering new plans or telling customers to call the company’s consumer service line for help on choosing new offers.

Shares of AT&T rose as much as 2.9% to $19.68 on the news. Verizon Communications Inc. added 2.1% and T-Mobile narrowed its loss for the day.

Subscribers will have the option to avoid the price hike by switching to new unlimited plans, the carrier said.

“We are encouraging our customers to explore our newer plans which offer many additional features, more flexibility for each line on their account and, in many cases, a lower monthly cost,” the carrier said Tuesday in an emailed response to questions.

Price Pressures

AT&T has been warning investors of inflationary pressures. On an earnings call last month, Chief Executive Officer John Stankey said rising wages could add about $1 billion to the company’s overhead this year and raised the prospect of increasing prices.

“Running this business and not sitting here and evaluating where we have options to move on pricing and be successful, I wouldn’t be doing my job properly,” Stankey said.

What Bloomberg Intelligence Says

“AT&T’s decision to raise prices on some of its older plans appears to be aimed at driving a further migration to its new unlimited plans.”

--John Butler, senior industry analyst

--Read the research here.

As a result of the Covid-19 pandemic, wireless phone companies have been seeing record low wireless churn rates. While locked at home, customers stuck with their carriers and largely continue to do so today.

The price hike will test whether mobile service providers can join other industries like food and energy in passing on higher costs. Unlike cable-TV bills that increase routinely, the wireless industry typically doesn’t raises prices on current customers but uses promotions to move people to higher-priced plans. 

AT&T’s move might ruffle some feathers, according to a Recon Analytics mobile intender survey. The rate of customer defections, which ran at about 1% a month at AT&T, could rise to as much as 1.25%, according to the survey. And Verizon would be the biggest beneficiary of the shift, according to the survey responses. 

Status Quo

For years, carriers have competed for and enticed new customers by matching each others’ offers -- whether it was with unlimited data caps, free streaming from Netflix or HBO Max, or multiline family plans. AT&T’s move shakes up that status quo, according to Walt Piecyk, an analyst with LightShed Partners, who said all of the carriers are under pressure to generate a return on recent multibillion-dollar investments.

“5G and free streaming services have not been enough to stimulate migration to higher bundles that are needed to generate revenue growth in the wireless industry,” Piecyk said.

Like food and fuel, mobile phone connections have become an essential service. 

“Service providers have almost carte blanche to raise prices, provided their chief rivals do as well because communications services are a must-have, not a luxury,” said Tammy Parker, an analyst with GlobalData.

©2022 Bloomberg L.P.