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2 Major Telecom Carriers Hike Wireless Price on Inflation Woes

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The U.S. consumer inflation has been steadily rising since the second half of 2021, reaching 8.3% in April – slightly down from a 40-year high of 8.5% recorded in March. This has largely affected companies' business operations with high production costs and mounting wage bills denting margins. This has forced various firms to hike overall prices and pass a significant portion of their inflated bills to the consumers for sustainability. The telecom carriers are the latest in the fray to join this bandwagon.

Verizon Communications Inc. (VZ - Free Report) has announced an imminent hike in wireless prices – the first in about two years to offset the rising costs. The company has informed consumers that the administrative charges for each voice line will be raised by $1.35 from June onward. For business customers, Verizon has decided to bring in an “economic adjustment charge” from Jun 16, 2022, which is likely to increase mobile data bills by $2.20 a month and basic service plans by about 98 cents.

The hike follows a similar suit by rival AT&T Inc. (T - Free Report) , which increased tariff rates earlier this month. The company had raised its consumer wireless tariffs by $6 on single lines and by $12 for families as part of the inflation-adjusted prices. Like other industry players, AT&T has been increasingly feeling the price pinch owing to inflationary pressures, adverse foreign currency translations and high operating costs for 5G deployments and fiber expansion. The continuous infrastructure investments and high operating costs are weighing on the margins. The company has even divested its advertising and analytics division, Xandr, and spun off the WarnerMedia business to trim its huge debt burden and focus on core businesses.

While optimizing operations, AT&T is also aiming to increase efficiencies to lower operating costs while focusing on 5G and fiber-based broadband connectivity. The company expects to connect 3.5-4 million additional locations with fiber each year as it continues to expand its fiber builds in metro areas to significantly increase its existing fiber footprint to more than 30 million locations by the end of 2025. In addition, AT&T intends to deploy 120 MHz of mid-band spectrum to considerably expand its 5G coverage, which currently spans more than 16,000 cities and towns, covering more than 255 million people. The company expects that 75% of its network footprint will be either served by fiber or 5G, which will likely halve its legacy copper services exposure. These simplification initiatives are likely to drive additional cost savings while creating new revenue opportunities.

On the other hand, Verizon is striving hard to balance higher prices with better customer service and improved 5G offers. The company’s 5G mobility service offers an unparalleled experience that impacts industries as diverse as public safety, health care, retail and sports. Verizon’s 5G network hinges on three fundamental drivers to deliver the full potential of next-generation wireless technology. These are massive spectrum holdings, particularly in the millimeter-wave bands for faster data transfer, end-to-end deep fiber resources and the ability to deploy a large number of small cells. In order to expand coverage and improve connectivity, Verizon has acquired 161MHz of mid-band spectrum in the C-Band auction for a total consideration of $45.5 billion. These airwaves offer significant bandwidth with better propagation characteristics for optimum coverage in both rural and urban areas.

With two of the leading carriers increasing their wireless tariffs, consumers are likely to be burdened with additional monthly expenses. Probably this was one of the primary reasons why the Federal Communications Commission initially offered stiff resistance toward the T-Mobile US, Inc. (TMUS - Free Report) and Sprint merger on the grounds that the combination of the third and fourth-largest carriers in the domestic market would stifle competition and lead to monopolistic trade practices. Following its merger with Sprint, T-Mobile boasts an unrivaled bouquet of high- and low-band spectrum for a faster nationwide 5G rollout, undeniably disrupting the competitive landscape of the U.S. telecom market. To its credit, T-Mobile has the largest nationwide 5G network, with its Extended Range 5G covering 315 million people or 95% of Americans. The company is further strengthening its mid-band coverage by adding more towers and spectrum in places with 5G network connectivity.

The company intends to offer the same services at a discounted rate for three years post-merger. The revamped T-Mobile competes for consumers at all price points. Customers, including prepaid and Lifeline, have access to the same 5G network and services. The combined company’s network has 14 times more capacity than on a standalone basis, which enables it to leapfrog the competition in network capability and customer experience. Furthermore, T-Mobile launched new Magenta for Business plans, with Microsoft 365 included at no extra charge on up to two lines per account. This underscores the company’s commitment to supporting small business owners with the plan, devices and solutions they need to adapt to the evolving market conditions.

Whether this would mean a large influx of customers in the long run from Verizon and AT&T to T-Mobile remains to be seen.

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