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Why AT&T Is No Longer at Ease

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The carrier loses 191,000 customers

The report that AT&T (T) lost 191,000 postpaid subscribers in 1Q17 wasn’t surprising. After all, Verizon (VZ), the largest wireless carrier in the US (SPY), had reported a loss of 289,000 postpaid phone customers in the same quarter. But what’s even more disturbing to AT&T and its investors is who is benefiting from the subscriber loss.

T-Mobile (TMUS) said it gained 789,000 postpaid phone customers in 1Q17, an indication that it’s succeeding in luring customers away from AT&T and Verizon. T-Mobile and Sprint (S) are determined to rewrite phone carrier rules. The companies have offered steep service discounts, which have increasingly made their larger rivals vulnerable.

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AT&T pays price of being late with unlimited data

AT&T’s subscriber losses are in part a consequence of the company’s late entry into the unlimited data plan market, a mistake that allowed T-Mobile more room to lure customers away with the promise of flexible data plans. As a result, AT&T paid another price in the form of revenue loss.

AT&T reported revenue of $39.4 billion in the latest quarter, down from $40.5 billion a year earlier and short of the consensus estimate of $40.5 billion. However, the management also blamed anemic equipment sales for the year-over-year revenue decline. The company said it will no longer provide full-year revenue forecasts.

AT&T remains under pressure

One of the reasons AT&T may not be at ease going forward is that T-Mobile just emerged from a spectrum auction where it walked away with about 45% of the entire spectrum auctioned. With the newly acquired spectrum, T-Mobile can extend its network coverage to areas where Verizon and AT&T have enjoyed a duopoly for years.

The other headache for AT&T is that while it hoped to get its hands on Straight Path’s spectrum to support its 5G network efforts, its bid for the company is being challenged. Thus, AT&T could miss out on crucial spectrum.

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