When wireless service provider AT&T Inc (NYSE:T) reported having accrued revenue which in spite of being profitable, was short of the projected figure, the grim outcome of drastic price-cuts took on an aura of reality.
Courtesy of the growing competition in the wireless sector, service providers have not had much choice but to engage in a price war. While this has worked in favor of the customers who have benefitted from lowering of charges, for the players involved it has spelled a reduction in revenue. This is the reason to which the decrease in revenue of AT&T Inc (NYSE:T) by 1-1.5% has been attributed to. Bloomberg, a company which has also been implementing lower tariffs with the intention of combating rivals, had the following comment to make –
“The company lowered its 2014 revenue growth forecast to 3% to 4% partly because of fewer-than-expected installment plan sign-ups, down from a previous projection of about 5% growth.”
One of the reasons was cited as the provision made by the company to allow users to use their own devices rather than purchase one at the company’s store. As per John Stephens, CFO at AT&T Inc (NYSE:T) –
“The value in our customer relationships is in providing good service to the network. The phones themselves are not profitable pieces of business. The issue many people don’t understand is that while we don’t have the equipment revenue, we also don’t have the equipment expense.”
Like most of the wireless carriers, AT&T Inc (NYSE:T) also replaced its two-year contract plan with that concerned with equipment finance. While this measure caused the service fee to lower, it also cut down on subsidies and when coupled with users resorting to their own devices, the adverse impact on revenue was duly manifested.
But the cloud is not all black and the proverbial silver lining is represented by the fact that there has been a substantial increase in the number of post-paid subscribers not to mention the minimizing of churn rate.
In reaction to this latest news, shares of AT&T Inc (NYSE:T) fell by 1.5% to close at $34 on Wednesday although it is a mixed bag of goodies.
This article has been written by Vinita Basu.