Reflecting the growing importance of cellular devices, AT&T is cutting their prices as well as offering discounts and credit to new customers that switch from another service provider.
Cellular Service could be considered an oligopoly, with few major players all offering the same basic service. AT&T has responded to market pressures to increase their service base by cutting costs. This continual effort by all service providers to cut consumers costs could turn into 0 profits, by decreasing price until ultimately Price = Marginal Cost for each provider. This could prove to decrease the players even more if cutting costs down so much is a continuing trend even further and resulting in firms leaving the market due to negative profits.
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ReplyDeleteOne of the reasons for AT&T (the second largest US wireless carrier)to cut its prices are that its fourth quarter results didn't meet up the subscriber growth expectations of Wall Street. Wall Street net addition subscriber expectations were 636,000 and AT&T had only 566,000. They believe they have the best service and they want to sell it at the best value. Maybe this is one of their strategies to rank no 1 and also to win back shareholders confidence.
ReplyDeleteAnother reason why AT&T is adopting this strategy is because of what is going on in the network provider service market. Competitors like T-Mobile are buying out contracts and are pushing for off contract plans which are significantly cheaper and have less liability to the consumer. These are safer and more convenient packages which AT&T is not currently focused on even though they do offer off-contract services. Why would a consumer want to be tied to a contract which could possibly affect their credit rating and is more expensive at the same time? By reducing cost AT&T is addressing one of the issues with being on contract.
ReplyDeleteI don't think there should be very much concern surrounding the issue. There are still quite a few cell phone companies, and AT&T has a ways to go before it goes out of business. It seems more likely that this lowering of prices is just the market dictating what their service is worth.
ReplyDeleteRelative to its peers, ATT has a considerably higher profit margin (over 20 percent compared to VZ 16.5 percent). The decrease in costs will increase revenue and bring down the profitability ratios to near industry averages. Overall, the move makes sense and will be accretive to earnings.
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