One of the leading wireless carriers, AT&T Inc. (T) has planned to shelve its $10.00 text plan for 1,000 text messages. Instead, the company will introduce an unlimited text plan for $20.00 a month. Alternatively, users will be charged 20 cents a text message.
More customers are moving toward bundled services with an unlimited text plan. A recent study suggests that approximately 180 billion text messages are sent each year across the AT&T network i.e., approximately 500 million per day.
Text messaging remains highly lucrative with an approximately $40 billion market capitalization. Additionally, the messaging service remains a high gross margin business with text message network maintenance costs being nominal.
We believe the recent move of unlimited messages by top carriers remains a strategic decision to gain traction in a highly competitive market environment. Apart from the mobile carriers, tech companies are also joined the fray to capture the potential market opportunity in messaging services.
Tech giants like Apple (AAPL) and Google (GOOG) are launching their own free messaging services. Google has already introduced Google Voice that supports free texts through the Web. Apple is slated to unveil its iMessage service later this year, allowing iPhone, iPod Touch and iPad users to send free messages over their wireless connections. Further, free messaging services on social networking sites like Facebook and Twitter has become popular among customers.
We believe technology providers like Apple, Google and Microsoft (MSFT) will soon begin their wireless data businesses, creating significant threats for carriers like AT&T. In such an event, the profitability of any mobile carrier will depend upon remodeling of their service offerings as per the changing market conditions as customers are increasingly drifting toward data services.
We currently maintain out long-term Neutral recommendation on AT&T supported by a Zacks #3 Rank (Hold).
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