Why AT&T Added a Big Video Discount to Its Unlimited Plan

Earns AT&T
In this Wednesday, Oct. 17, 2012, photo, an AT&T logo is displayed on an AT&T Wireless retail store front, in Philadelphia. The flow of customers into AT&T's wireless stores slowed further in the latest quarter, putting the company far behind rival Verizon Wireless. AT&T Inc. on Wednesday, Oct. 24, 2012, said it added a net 151,000 new customers on contract-based plans from July through September, the lowest number for that period since at least 2003. (AP Photo/Matt Rourke)
Photograph by Matt Rourke — AP

AT&T put its multifaceted video entertainment strategy to work on Monday to aid its wireless business. While rivals have started to offer unlimited data plans at rock bottom prices—a recent Sprint promotion charges just $90 for four lines—AT&T’s counter punch was about putting wireless and video offers together.

Glenn Lurie, president of AT&T’s Mobility and Consumer Operations, explained to Fortune that the response is aimed to play to AT&T’s strengths—strengths he says competitors can’t match.

AT&T had the most expensive unlimited offer, starting at $100 for a single line. So on Monday, the company cut the price modestly to $90. But it also added a $25 month discount for unlimited customers, who also subscribe to one of its three pay-TV offerings: the DirecTV satellite service, the U-Verse cable service, or the DirecTV Now online streaming service.

Competitors don’t have anywhere close to AT&T’s more that 25 million wired and satellite video subscribers and don’t have their own Internet video cable-like video streaming service either.

“We’re about integration,” Lurie says in an interview, sitting in a conference room above AT&T’s sprawling booth at the Mobile World Congress, the telecom industry’s big annual trade show in Barcelona.

Calling the $25 price cut for dual subscribers “a “very healthy discount,” he points out that a customer can now get both AT&T’s unlimited phone plan and the basic level of the DirecTV Now online video service for a total of just $100 a month. Before the price cut and promotion, that combo would have cost $135 a month.

“You’re getting a whole bunch of goodies,” he says. “We’re the only ones who can do that. That’s what’s fantastic about the offer and it’s obviously incredibly competitive with the rest of the industry.”

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Bundling is an age-old strategy to convince customers not to defect to competitors but it hasn’t always worked in the telecom business, where typical bundle discounts are only $5 or $10. But AT&T’s data shows that a wireless customer who also takes a video service is “exponentially” less likely to defect and adding third service, such as home Internet magnifies the impact to the same degree again, Lurie says.

For most of the past year, AT&T only offered its unlimited data plan to customers of its DirecTV and U-verse video services, but without a discount. Verizon’s (VZ) decision two weeks ago to finally offer an unlimited plan—after Sprint and T-Mobile had successfully pitched their low-cost unlimited plans for months—forced AT&T’s hand. The Dallas-based carrier last week lifted the video requirement and allowed any wireless customer to opt for unlimited data.

But the open unlimited plan didn’t play to AT&T’s bundling strengths, so the company tweaked the offering, Lurie says. “We’re going to continue to stay focused on delivering that full integrated value,” he says.

That also means AT&T (T) still won’t get fully involved in the price war that Sprint and T-Mobile have led in 2017. “We’re not going to chase every knee jerk offer—we don’t have to,” Lurie says. “There are competitors in the market place that that’s their only option. Their only option is to go compete on price and mobility. That’s all they have.”

Absent the occasional temporary promotion, Sprint’s (S) unlimited plan starts at $60 per line and goes up to $150 for four lines. The carrier started a limited promotion recently, offering five lines for only $90 per month for the first 12 months. T-Mobile’s unlimited plan starts at $70 and goes up to $160 for four lines. Last month, T-Mobile (TMUS) also stopped adding surcharges and taxes as additional fees, effectively cutting its unlimited price by another 10% or more. And then on Monday, T-Mobile said customers could get three unlimited lines for $100, up from two lines under its previous deals.

Away from the pricing wars, Lurie is looking forward to robust smartphone sales later this year, as both Apple (AAPL) and Samsung are rumored to have appealing new models in the works. Samsung on Sunday said it would unveil its Galaxy S8 smartphone on March 29. Apple’s 10th anniversary iPhone, with a rumored edge-to-edge display and wireless charging feature, is expected later in the fall.

“I think there’s a lot of really cool innovation coming in the hardware,” he says. “You have the rumor mill around what Samsung’s doing, you have an anniversary around what Apple’s doing. Other people have rumors around what they’re going to do. I actually think its pretty darn exciting.”

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