AT&T Caps Unlimited Plan

Zacks

AT&T Inc. (T) put a cap on its unlimited data plans due to growing demand and limited capacity. AT&T said that the data speeds on unlimited 3G and 4G smartphones would slowdown when it exceeds more than 3 gigabytes (GB). The 4G LTE speeds will also lessen beyond 5GB in a particular month.

The move comes on the back of customers’ complaints last month about the speed slowdown after using only 1–2 GB. Previously, the company had put a limit on the speeds for those smartphone customers, who already use the top 5% data in a particular month in a congested network area.

The demand for smartphones is growing in leaps and bounds, leading to greater requirement for wireless data services. Data usage has more than doubled over the last three years. As a result, the mobile operators, including AT&T, Verizon Communication Inc. (VZ) and Sprint Nextel Corp. (S), have already switched to tiered-data pricing plans from the unlimited data plans in June last year. However, the old and existing subscribers are still using the unlimited plans.

The second-largest U.S. mobile service provider is facing hurdles in managing the rising mobile data traffic resulting from the most popular Apple Inc.’s (AAPL) iPhone and Google Inc.’s (GOOG) Andriod smartphones amid stiff competitive pressures and limited  wireless spectrum licenses.

With the unsuccessful ending to the T-Mobile merger, the company is in need of additional airwaves to expand its high-speed services. Already criticized for dropped calls and poor network coverage, AT&T will face more constraints in its capacity deployment than its largest rival, Verizon, which will in turn hurt subscriber growth.

AT&T is competing with the aggressive pricing plans of Verizon and Sprint. Moreover, smaller wireless carriers, such as Deutsche Telekom’s T-Mobile, MetroPCS Communication (PCS) and Leap Wireless (LEAP) are also offering cost effective unlimited voice and data plans. This may negatively influence AT&T’s high-end handset sales and challenge subscriber retention.

We prefer to maintain our long-term Neutral recommendation on AT&T. The company retains the Zacks # 3 (Hold) Rank for the short term (1–3 months).

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