Can AT&T Squeeze More Money From Customers Without Losing Them?

AT&T is doing two very basic things right: It is attracting new wireless customers and making more money from each of them.

The company claimed it added nearly 1 million wireless customers in its most recent quarter, according to earnings released Wednesday, including 363,000 who signed contracts. This was twice as many customers as it added a year ago and slightly beat estimates compiled by Bloomberg News. Analysts often focus on customers with contracts, known as postpaid users, because they’re more lucrative and more stable than prepaid customers, who can bail at any time, no questions asked.

AT&T also managed to squeeze more revenue out of each of its customers. Average revenue per postpaid phone user increased 3.1 percent from a year earlier. Add in tablets, and that gain is smaller, at 1.5 percent.

This is all good news, but it’s unlikely that AT&T can continue both to add customers and to earn an increasing amount of money from each one. The American smartphone market is getting saturated, and increasingly, the only significant way to add customers will be to steal them from competitors. AT&T is already lagging. The company’s gains were less than those of Verizon Wireless, which added 927,000, and T-Mobile, which gained 401,000 subscribers, according to analyst estimates compiled by Bloomberg.

AT&T says that trade-in programs, persuading customers to use more data, and just being more efficient will help keep margins up. But if it has to focus on poaching, it will likely have to do so by offering lower prices. This is especially true given that newly invigorated T-Mobile has been quite public about its willingness to wage price warfare. Several hours before AT&T released its earnings, T-Mobile held a press conference to discuss its decision to offer 200MB of free monthly data to iPad users. T-Mobile is the fourth-largest wireless carrier in the country, but its ability to be an irritant has increased since it brought Apple devices onto its network. It has been using this aggressively, offering services designed to hit on the things that bother people about their wireless carriers.

AT&T may still beat T-Mobile in network quality, but the smaller company seems set on proving that a wireless company can succeed on much lower profit margins. This doesn’t seem to be something AT&T is particularly interested in talking about. When an analyst asked for the company’s perspective on T-Mobile’s iPad data pricing, representatives for AT&T ignored it and moved to the next issue. It probably won’t be able to do that forever.

Before it's here, it's on the Bloomberg Terminal.