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VOL. 127 | NO. 93 | Friday, May 11, 2012

US Phone Subscribers Hang Up on Contracts

PETER SVENSSON | AP Technology Writer

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NEW ORLEANS (AP) – U.S. consumers have had their fill of expensive, contract-based phone plans.

Figures from T-Mobile USA on Thursday, added to earlier reports from other companies, indicate that the U.S. wireless industry lost subscribers from contract-based plans for the first time in the first quarter. Contract-based plans are the most lucrative ones for phone companies. The industry default over the past several decades, they account for the vast majority of revenue at the big phone companies.

The seven largest U.S. phone companies, representing more than 95 percent of the market, lost a combined 52,000 subscribers from contract-based plans in the January to March period, according to a tally by the Associated Press. The companies have a combined 220 million devices on such plans, accounting for about two-thirds of the total number of devices.

Since nearly every adult, and many children and teenagers, already have phones, there's little room for growth anymore. But subscribers are also flowing to cheaper, no-contract plans, which showed an increase of at least 2 million. That figure, however, is down from more than 5 million in the same quarter a year ago.

The industry is also adding millions of non-phone devices, like smart energy meters. These so-called "machine-to-machine" connections usually carry very low monthly fees, on the order of a few dollars per month.

For example, AT&T subscribers on contract-based plans pay an average of $64.46 per month, while other AT&T customers pay an average of $11.52 per month.

T-Mobile's report comes on the last day of the U.S. cellphone industry's annual trade show in New Orleans. At the show, companies talked about various ways of boosting their business outside phones. For instance, AT&T launched a home security and automation business, and the head of its wireless business, Ralph de la Vega, said the company is getting closer to launching family data plans, which would allow the sharing of one "bucket" of data among various devices and family members. That could encourage people who already have a smartphone to get a tablet with data service as well. Verizon Wireless has already announced that it is introducing such plans this summer.

The first quarter is a seasonally weak one for contract-based plans, and the industry is likely to show some subscriber additions for the whole of the year. But the gains will be spread unevenly over the phone companies. For the last year and half, the four nationwide phone companies have added or lost subscribers in order of size: Verizon Wireless, the largest, has gained the most, followed by AT&T Inc. Sprint Nextel Corp., No. 3 in size, has mostly lost subscribers, while No. 4 T-Mobile has done so consistently. That poses a conundrum for regulators who want to preserve vibrant competition in the industry.

AT&T launched a major bid to consolidate the industry last year by striking a deal to buy T-Mobile for $39 billion, but the project was scuttled by regulators who said it would reduce competition and raise prices for consumers. On Wednesday, Bloomberg News, citing anonymous sources, reported that T-Mobile was in talks to buy MetroPCS Communications Inc., the fifth-largest cellphone company in the U.S. However, the combination would be difficult to manage, since the companies have incompatible networks. Branding could pose a challenge too: T-Mobile wants to appeal to business customers, while MetroPCS sells almost exclusively to low-income, urban households. Acquisition talk surrounding MetroPCS surfaces from time to time, but no deals have resulted.

The AP's tally of subscribers excludes some contract-based machine-to-machine connections reported by T-Mobile. The company also added 435,000 prepaying subscribers of all kinds in the quarter, which was the best result in more than two years for that category. T-Mobile credits its new prepaid monthly plans with fast "4G" data service for the increase.

Overall revenue at T-Mobile USA, a unit of Deutsche Telekom AG of Germany, fell 2 percent from a year ago.

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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