AT&T (NYSE: T) has struggled to hold on to its most valuable customers for a long time now. It's been almost three years since the company posted positive net additions to its postpaid phone subscriber count. But following its acquisition of DIRECTV and with its acquisition of Time Warner (NYSE: TWX) nearing completion, AT&T is getting very aggressive in getting customers to take multiple products.
"If you're in a household and you have our wireless service, there's an all-out push to make sure you have our video products as well," CEO Randall Stephenson told the audience at Goldman Sachs' Communacopia Conference. AT&T's latest effort is to bundle free HBO with its lower-tier unlimited data plan. The company previously reserved free HBO for its premium unlimited plan.
To a certain degree, AT&T's hand was forced. T-Mobile (NASDAQ: TMUS), the constant thorn in the side of AT&T, started offering customers free Netflix earlier this month. Verizon (NYSE: VZ) also offers some streaming video perks including access to locally broadcast NFL games as well as a discount on NBA League Pass and exclusive content for Verizon customers through its go90 app. Video is becoming an essential part of the wireless plan.
Differentiation is getting harder
T-Mobile has invested heavily in its network over the last four years, and its network is moving closer to par with AT&T's and Verizon's. In fact, T-Mobile has occasionally come out on top in rankings from third-party network surveys. While AT&T and Verizon used to advertise how much better their networks were than the competition's, that angle doesn't work as well today.
In this environment, finding new ways to differentiate the service is getting tougher. That's especially true for AT&T and Verizon, which hold the lion's share of subscribers. Naturally, they don't want to do anything to disrupt the existing economics of the wireless industry. That's why they always wait for T-Mobile to do something before responding.
AT&T's acquisitions of DIRECTV and Time Warner give it a great way to differentiate. Bundling is a common practice throughout the industry, but Time Warner will likely make it more economical for AT&T to offer free HBO to customers. AT&T also offers a $25 discount on any of its television services, which means subscribers could get TV service, including HBO, for just $10 per month more with DIRECTV NOW. None of its competitors offers anything close.
AT&T also has plans to offer another bundle focused on Time Warner's television properties after its deal closes later this year, according to Stephenson. AT&T could start offering incredible value to subscribers looking to bundle video entertainment with their wireless service.
Driving down churn, but what about adding new customers?
AT&T's efforts have been very effective at driving down churn -- the percentage of customers that leave during a fiscal period. Its postpaid phone subscriber churn in the second quarter was just 0.79%, a new record.
Both T-Mobile and Verizon posted some of their best postpaid phone subscriber churn rates as well. T-Mobile's fell to 1.1%, a record for the company. Verizon established a record for churn in the LTE era with just 0.7% of customers leaving. So it seems there's a greater trend across the industry of customers sticking with their provider, which coincides with the fact that people are taking longer to upgrade their phones.
AT&T is still bleeding postpaid subscribers even if its gross losses are getting smaller. Offering free HBO may entice some customers, but it comes with worse economics for AT&T. But that's the cost of subscriber growth in the current wireless environment.
10 stocks we like better than AT&TWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and AT&T wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of September 5, 2017
Adam Levy owns shares of Verizon Communications. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends Time Warner and T-Mobile US. The Motley Fool has a disclosure policy.