UPDATE 4-Wal-Mart's takes discount wireless plans nationwide

Wed Oct 14, 2009 5:44pm EDT

* U.S. Wal-Mart stores to expand Straight Talk nationwide

* Seen sparking further mobile service price wars

* Offering developed with TracFone Wireless

* Leap to offer rival monthly plan in next several days

* Leap, MetroPCS shares dip (Recasts top paragraphs to emphasize competitive impact; adds analyst comment on T-Mobile USA)

By Nicole Maestri and John Tilak

SAN FRANCISCO/BANGALORE, Oct 14 (Reuters) - Wal-Mart Stores Inc (WMT.N) will sell cut-price mobile services nationwide, threatening to exacerbate a price war and hurt profit margins across the U.S. wireless sector.

The move pits Wal-Mart, teamed with a company owned by Mexican billionaire Carlos Slim, against low-cost carriers such as Leap Wireless International Inc LEAP.O and MetroPCS PCS.N and Sprint Nextel's (S.N) Boost Mobile.

T-Mobile USA, owned by Deutsche Telekom (DTEGn.DE), is also expected to bring its own cut-price service nationwide in coming weeks, adding further heat to the market.

"It raises the risk of an industry-wide pricing war," said Soleil/Nelson Alpha Research analyst Michael Nelson.

Shares of Leap and MetroPCS fell after Wal-Mart announced on Wednesday the expansion to more than 3,200 stores of the service, developed with TracFone Wireless Inc, the U.S. unit of Mexican cellphone giant America Movil (AMXL.MX) (AMX.N).

The TracFone offering includes a $30 prepaid plan for 1,000 minutes as well as a $45 per month plan for unlimited calling. The service runs on the network of U.S. mobile market leader Verizon Wireless, a venture of Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L).

Wal-Mart said it will be offering the plans nationwide on Oct. 18 after a pilot program in 234 stores this summer. It said that customer response to the program was "overwhelming."

While many investors had expected TracFone to expand its trial across the country, the announcement underlined increasing competition for Leap, MetroPCS and others.

"This clearly represents increased competition for the entire wireless sector and in particular for the unlimited pay-in-advance segment, of which Leap and MetroPCS are really likely to be negatively impacted the most," said Nelson referring to the Wal-Mart offering.

The retailer's offering could also rob customers from the No. 4 U.S. mobile service, T-Mobile USA, which has been losing ground to bigger rivals Verizon and AT&T Inc (T.N) as well as its smaller competitors Leap and MetroPCS.

T-Mobile USA currently offers a $50 per month service plan as a loyalty bonus to customers who call the company with the intention of canceling their service. Analysts see it expanding this offer to the broader market in coming weeks.

"The risk for Verizon and AT&T is what kind of aggressive response we're going to see from T-Mobile and will that have a ripple effect throughout the industry," said Nelson.

Both Verizon and AT&T, the No. 2 U.S. mobile service, have long said that they do not need to compete in the low end of the market, but this could change as overall growth slows.

Nelson said that while Verizon will gain revenue from TracFone customers using its network, there is a risk that it loses some of its higher paying customers to the service.

"What's different this time is that total industry subscriber growth is significantly decelerating so incremental opportunities are much more limited," the analyst said.

Analysts have said that the Wal-Mart trial had already hurt Leap and MetroPCS in the second quarter and Nelson said it would likely weaken their upcoming third-quarter reports too.

"Now with the nationwide expansion of the service through an extremely powerful distribution channel of Wal-Mart, it certainly raises the risk profile of the unlimited pay-in-advance segment," Nelson said.

Leap plans to combat the expanded offering by launching its own rival product at Wal-Mart and Dollar General in the next several days, its spokesman said.

"Our monthly product will expand within the next several days," Leap spokesman Greg Lund said. Leap's daily product is already available at Wal-Mart and Dollar General, he said.

The company has already rolled out the monthly product at Target (TGT.N) and Best Buy (BBY.N), Lund said.

MetroPCS was not immediately available for comment.

Sprint's $50-a-month Boost service is already available at about 20,000 retail locations throughout the U.S., including Wal-Mart, Radio Shack (RSH.N), Best Buy and Target, Boost spokesman John Votava said, adding that Boost would expand into additional Wal-Mart locations on Monday.

"This is mostly a defensive measure by TracFone to match pricing that already exists among their low-end competitors, like MetroPCS and Leap," Auriga USA analyst Chandan Sarkar said. "It will help them defend a lot of their market share, which would have otherwise gone to these two competitors."

Leap shares closed off 16 cents, or 1 percent, at $15.24 on Nasdaq. MetroPCS shares fell 22 cents, or almost 3 percent, to $7.32 on the New York Stock Exchange. (Additional reporting by Sinead Carew in New York, Editing by Matthew Lewis, Phil Berlowitz, Tim Dobbyn)

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