Photo Credit: Michael Dorausch via Flickr.
Photo Credit: Michael Dorausch via Flickr.

No big surprise here: AT&T and Verizon are starting to see an impact from promotions, like the one Sprint announced week, that offers to cut your bill in half.

This week AT&T and Verizon Wireless both acknowledged that T-Mobile and Sprint’s deep discounting tactics are starting to take a toll on their businesses.

AT&T said today that churn would be higher and margins would be lower in the fourth quarter, according to The Wall Street Journal, and yesterday, Verizon Wireless said its profits were under “short-term” pressure because of offering promotions to get customers to sign-up or stay with the carrier, Reuters reports.

Verizon has been slow to match rivals’ discounts, saying it was taking a “logical, rational” approach to the price wars, whereas AT&T decided to move quickly to fend off the competition. But it seems neither strategy is fool proof.

Today, AT&T’s stock price is trading 3 percent lower at $32.88 a share. Verizon Communication’s shares are also trading lower, falling 4.3 percent, or $2.09 a share, to $46.81.

The industry’s turmoil all started this summer when a fierce battle broke out among the four major wireless providers, each one trying to offer more data for less.

T-Mobile first kicked off the pricing war, as its fast-taking CEO John Legere attempted a bold turnaround. Sprint joined later, after it decided against acquiring T-Mobile, and replaced its CEO Dan Hesse with Marcelo Claure. Under his leadership, Sprint, which is majority owned by SoftBank, has been fine-tuning its approach, and most recently launched a new promotion called “Cut Your Bill in Half.”

In many respects, Sprint and T-Mobile are in similar situations. They both are in the middle of repairing their images, and to do so, are offering customers inexpensive plans as incentive to switch to a network that is still in the process of being upgraded to the faster speeds. That also puts AT&T and Verizon in nearly the same boat, having to defend their top positions.

wirelessgraphicq3Last quarter, we did a thorough analysis to see how these discounts were affecting the flow of subscribers, concluding that T-Mobile is punching above its weight as the fourth-largest U.S. carrier. It has added 10 million total customers over the past six quarters, and revised its full-year expectations, to now expect postpaid net additions to total 4.3 to 4.7 million, implying fourth-quarter additions of 700,000 to 1.1 million. Legere went so far as to call the estimate “conservative.”

Based on AT&T and Verizon’s comments this week, T-Mobile seems to fighting the tide better than others.

AT&T’s warning today, however, was not completely without upside.

It still expects to add net postpaid customers, who don’t typically have a contract, in the fourth quarter compared to a year earlier. It also said that while margins will be lower in Q4, they would be equal to or better than they were last year for the same period.

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