June 5, 2010 / 12:12 AM / 7 years ago

Verizon may be alone in following AT&T rate change

NEW YORK (Reuters) - Verizon Wireless could be prepared to follow AT&T Inc’s (T.N) lead and change how it charges wireless subscribers to download data -- but analysts say other carriers may be better served by standing their ground in the latest pricing upheaval.

<p>Customers line up outside of a Verizon Wireless store to purchase the new Blackberry Storm phone in New York, November 21, 2008. REUTERS/Brendan McDermid</p>

AT&T’s move on Wednesday to halve mobile data fees for most customers -- but eliminate its unlimited data plan and make heavy users pay more -- created a rash of speculation about what rivals would do. None have revealed their plans.

Analysts are betting that U.S. market leader Verizon Wireless, owned by Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L), will react by cutting its prices at the low end. It will also pull its unlimited service to help it manage network capacity.

But AT&T’s next-biggest rivals -- Sprint Nextel (S.N) and T-Mobile USA, a unit of Deutsche Telekom (DTEGn.DE) -- are more likely to maintain their unlimited plans, allowing customers to surf the Web as much as they want for a fixed price.

Gartner analyst Phillip Redman said that Sprint Nextel and T-Mobile, because they have been losing subscribers, have more spare network capacity and can therefore lure away any customers that want to stick with unlimited plans. Both operators, however, may still introduce new low-end plans to match AT&T’s price cut.

“T-Mobile USA and Sprint are in the same boat. I don’t see them changing their top end plans,” Redman said. “But they will need to on the low end.”

Verizon Wireless, by contrast, has greater incentive to pull back on its unlimited plan, Nielsen wireless specialist Roger Entner said.

“The one that has probably to move the quickest is Verizon ... they’re growing and their data consumption is growing substantially,” Entner said.

Verizon executives have already discussed the likelihood of moving away from unlimited plans after the operator kicks off service late this year on a high-speed network it is building.

Some analysts said Verizon Wireless may wait until it launches the new service to pull away from unlimited pricing. But it will react very soon if AT&T’s cheapest plan gains ground.

“Verizon is very quick to respond,” Entner said. “If they see in their numbers that the AT&T price change is moving customers to AT&T and away from Verizon, then they’ll follow.”

The end of unlimited pricing is seen helping profit margins at AT&T and any rivals who follow suit. For instance, AT&T’s new $25 plan for 2 gigabytes of data represents a $5 per month revenue cut per user. Yet it will be cheaper for AT&T to support 2 gigabytes of data than unlimited services, which have put a massive strain on its network.

Charles Golvin from Forrester Research said AT&T’s $15 plan looks even better from a profit standpoint because it involves supporting 10 times less data than the 2 gigabyte plan.

“The margins are considerably higher for that plan,” he said.

While many commentators complained bitterly about the new service pricing, analysts say that it is actually good news for all but the heaviest smartphone data users, which AT&T says represent just 2 percent of customers.

Entner said that on average smartphone users roughly tripled their data downloads in the past year.

Even if usage keeps growing at this rate, most consumers will save money under the new usage-based AT&T plan, he said.

Reporting by Sinead Carew, editing by Matthew Lewis

Our Standards:The Thomson Reuters Trust Principles.
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