Leading wireless company, AT&T Inc. (T) is coming up with a toll free data service whereby its customers’ monthly allotment for surfing will not be used up when they surf websites of companies that sponsor it. In other words, Web content like movie or sports will not be tabbed to customers but will instead be charged on companies that sponsor data usage for their Web content.

AT&T Frontier

We see this as AT&T’s strategy of promoting wireless data usage that would in turn support its service revenues. The service would also pave way for establishing its LTE network.

We see this as AT&T’s strategy of promoting wireless data usage that would in turn support its service revenues. The service would also pave way for establishing its LTE network.

The latest promotional plan would be accretive to AT&T’s customer base, but might face hurdles. The market response to this new approach of sponsored data traffic is mixed. Being the first mega carrier to launch such toll free data services, AT&T is facing the onslaught of critics have condemned the whole idea citing that it would promote biasness. Critics also argue that sponsored data usage websites would discourage users from navigating other websites or content. They believe that this would eventually result in restricted data usage, hampering wireless data services growth.

Further, the new service by AT&T might also violate the net neutrality rules of Federal Communications Commission, which underpins equal treatment of data traffic on the network. Since the rule is generally applied to wireline services, this loophole might work in favor of AT&T.

Despite these criticisms, AT&T remains hopeful that it customers, especially in the lower income category would be befitted from this service. As more companies – such as Aquto and healthcare company UnitedHealth Group Inc. – are adopting such techniques to attract traffic to their websites, we believe AT&T is only likely to benefit from the new service and stay ahead of its rivals like Verizon Communications Inc. (VZ).

AT&T has a Zacks Rank #3 (Hold)

Other Stocks

Better-ranked stocks in this sector include Hawaiian Telcom Holdco, Inc. (HCOM) and Level 3 Communications, Inc. (LVLT). Both carry a Zacks Rank #1 (Strong Buy).

HAWAIIAN TELCOM (HCOM): Free Stock Analysis Report

LEVEL 3 COMM (LVLT): Free Stock Analysis Report

AT&T INC (T): Free Stock Analysis Report

VERIZON COMM (VZ): Free Stock Analysis Report

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