AT&T on Friday offered customers of No. 4 U.S. mobile provider T-Mobile U.S. a $200 credit to switch to its service, firing the first volley this year in what may become a price war that benefits consumers but plays havoc with profits across the industry.
AT&T, the No.2 U.S. mobile provider, announced the promotion after months of direct marketing against it by T-Mobile, and in anticipation of a new offer from its smaller rival on Jan. 8.
The news depressed shares in T-Mobile and Sprint Corp — which have been rallying in recent weeks on optimism about potential consolidation — and to a lesser extent industry leader Verizon Communications.
The move could kick off a year of discounts from U.S. wireless operators, who are increasingly dependent on price to compete because they all offer similar phones and any network advantages are hard to prove, according to analysts.
MoffettNathanson analyst Craig Moffett described AT&T's move as the "early makings of a price war" that would boost customer switching, also known as churn, and in turn hurt profits.
"Everybody's fighting for market share because there simply isn't an organic market share left to be had," Moffett said. "The natural upshot to any strategy that pays customers to change service is higher churn."
Analysts also worry that No. 3 U.S. rival Sprint, which has been losing customers for years, will unveil dramatic promotions in 2014 as its new 80 percent owner, SoftBank Corp, is expected to push Sprint to regain lost ground.