AT&T (NYSE: T) has created a pay-as-you-go unit called Aio Wireless LLC that offers service with no annual contract as the second largest U.S. wireless carrier works to compete with T-mobile US Inc. to win budget-conscious customers.

The new subsidiary will offer nationwide wireless service to value-conscious customers interested in unlimited talk, text and data plans without an annual contract.

Aio launched Thursday in select stores in Houston, Orlando, Fla., and Tampa, Fla.

AT&T plans to roll out the service in multiple markets across the U.S. over the next year. The company will offer three rate plans ranging from $35 to $70 a month.

Aio Wireless, based in Alpharetta, Georgia, also will sell a range of phones including Apple Inc.’s iPhone.

With Aio Wireless, AT&T will challenge T-mobile, which in March announced a value service plan starting at $50 a month for smartphones with an installment payment option on the devices.

Aio Wireless doesn’t offer faster long-term evolution service, or LTE, which is the latest technology.

“Aio was conceived long before we saw other offerings in the market,” Jennifer Van Buskirk, president of Aio Wireless, said in an interview. “We are offering this service to people who feel their needs aren’t being met. They want more data, they are moving to smartphones and social media, and they’ve had limited choices.”

Customers can buy phones on an installment plan, said Buskirk, who didn’t name the financing service. Aio Wireless plans to offer service nationally and open new stores, she said, adding that more markets will be announced in the coming months.

Dallas-based AT&T already offers some prepaid wireless services but this would significantly increase its presence.

Prepaid plans tend to be less profitable for companies. But they appeal to some consumers as they have lower monthly fees, often don’t require a credit check or a service contract. However the buyer usually has to pay full or nearly full price for phones.