(Recasts to reflect market action across U.S. mobile operators;
Adds analyst comments, background, share price updates; Changes
By Sinead Carew and Sruthi Ramakrishnan
Feb 3 Shares in U.S. mobile operators fell
sharply on Monday after a AT&T Inc price cut fueled fears
from investors that market leader Verizon Wireless and
other rivals would have to react.
AT&T shares closed down 4 percent a day after the No. 2 U.S.
mobile services provider slashed the monthly fee for a data plan
from $40 to $15.
Some analysts saw the price cut as a drastic step that could
force rivals such as Verizon Communications to response with
their own price cuts and, as a result, hurt profits across the
industry. AT&T and T-Mobile have been at each other's throats
for months, with offers aimed at each other's customers, but
many analysts had hoped that fight would be contained.
Shares in Verizon fell 3 percent, as did No. 4 operator
T-Mobile US shares, and Sprint stock ended down 5
percent after AT&T's move on Sunday.
"Now we're seeing real evidence of increasing competition
having real cost to the industry," said Jonathan Chaplin, a New
Street Research analyst who saw the price cut as a sign that
AT&T's recent efforts to regain market share lost to T-Mobile
had not been successful.
"It makes investors worry the market is really in trouble."
AT&T lowered its monthly fee for a 10 gigabytes monthly data
share plan aimed at families to $15 per device, from $40.
Chaplin expects the price cut to shave a relatively modest
0.5 percent to 1 percent off his previous estimate for AT&T 2014
earnings before interest, tax, depreciation and amortization of
$42.7 billion and a 1 to 2 percent cut to his 2015 EBITDA
estimate of $43.3 billion.
But he sees the move as only one step in what could result
in a bigger decline in prices across the industry.
"If this was the end, we wouldn't care and neither would the
market," Chaplin said, but added: "World War I started with one
archduke getting assassinated."
The competitive pressure started with aggressive discounts
by market laggard T-Mobile last year, which helped the company
report three quarters of customer growth after four years of
losses, mainly at AT&T's expense.
AT&T countered on Jan. 3 by offering to pay consumers to
switch from T-Mobile, while No. 3-ranked Sprint promised big
discounts for family and friend groups days later. T-Mobile then
upped the ante with an offer to cover the hefty exit costs for
consumers switching to its service.
T-Mobile's announcement last month "may have pushed AT&T too
hard," making it fight back, J.P. Morgan Securities analyst
Philip Cusick said on Monday.
"The back and forth in price cuts is a negative for the
entire wireless industry," J.P. Morgan's Cusick said.
Some analysts had hoped that at least Verizon could stay
above the battle, but Jefferies & Co analyst Mike McCormack said
on Monday that AT&T's new pricing plan also targets Verizon's
"prized" family plan customers.
McCormack said it was unlikely that Verizon would respond
with service price discounts. But others were less convinced, as
Verizon Chief Financial Officer Fran Shammo said this month that
his company would react to competition when required.
"(Verizon) will be the one to watch, in our view as they
have been on record saying it would react to price moves if they
felt the need," Wells Fargo Securities analyst Jennifer
Fritzsche wrote in a research note.
A Verizon Wireless spokesperson said that the company does
not comment on its competitors plans.
AT&T said its price change means that a family of four would
pay $160 per month or $100 less than Verizon Wireless, or $80
less than Sprint Corp, and $20 less than T-Mobile US for a
Jackdaw Research analyst Jan Dawson said AT&T could increase
its revenue by using price cuts to encourage more data usage.
"The strategy is important as the market becomes saturated
and there are fewer new customers to go around," he said.
AT&T shares closed down $1.37 at $31.95 on the New York
Stock Exchange. Verizon shares dropped $1.61 or 3.3 percent at
$46.41, Sprint stock fell 42 cents or 5 percent to $7.85 and
T-Mobile shares fell $1.04 or 3.4 percent to $29.53.
(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by
Saumyadeb Chakrabarty and Amanda Kwan)