February 19, 2008 / 9:21 PM / in 10 years

Unlimited mobile plans spark price war concerns

NEW YORK (Reuters) - AT&T Inc (T.N), Verizon Wireless and Deutsche Telekom’s (DTEGn.DE) T-Mobile USA on Tuesday announced flat rate plans for unlimited calls in the United States, raising investor concerns that a price war could break out and sending shares lower.

<p>Men use their mobile phones January 17, 2008. AT&amp;T Inc., Verizon Wireless and Deutsche Telekom's T-Mobile USA on Tuesday announced flat rate plans for unlimited calls in the United States, raising investor concerns that a price war could break out and sending shares lower. REUTERS/Enny Nuraheni</p>

Verizon Wireless, a venture of Verizon Communications Inc (VZ.N) and Vodafone Group Plc (VOD.L), said early on Tuesday it started offering unlimited calls for $99.99 a month. AT&T and T-Mobile USA followed with similar plans.

The actions put pressure on Sprint Nextel Corp (S.N), the No. 3 U.S. wireless service, to match the plans or risk customers defecting, analysts said.

“I think this increases the potential for an all out pricing war,” said Stanford Group analyst Michael Nelson.

He said the plans were likely to prompt high-spending customers to downgrade their plans rather than encourage customers to upgrade to unlimited plans.

Shares of Verizon Communications fell 6.26 percent, AT&T fell 5.6 percent, and Sprint fell 2.61 percent.

About 85 percent of U.S. consumers have cell phones, which is increasing pressure on U.S service providers to maintain growth rates.

Sprint Nextel spokeswoman Leigh Horner declined to comment on future plans but said Sprint was testing plans in four markets with unlimited voice, text and Web access for $119.99 and $149.99.

“It all but forces them to respond,” said analyst Craig Moffett from Sanford Bernstein. “They’re not going to be competitive if they simply match these prices because their networks are weaker and their brands are not as strong.”

Smaller wireless companies Leap Wireless LEAP.O and MetroPCS PCS.N offer unlimited calling for customers who do not want roaming capabilities.

Nelson said they should not be threatened as their customers, who pay about $40 a month for unlimited services in their local markets, would be unlikely to buy a $100 plan.

Leap shares closed up 3 cents on Nasdaq while MetroPCS stock finished down 57 cents at $15.54.

Analysts said they expect a minimal immediate impact on Verizon Wireless’ average revenue per user (ARPU) because only a small percentage of its customers spend more than $100 a month on phone calls. Verizon Wireless’s ARPU for retail customers was $51.59 in the fourth quarter, compared to $50.28 at AT&T.

UBS analyst John Hodulik said the new Verizon plan could attract some customers who are now on $150 and $200 monthly plans. He said Sprint may have to come out with a more aggressive offering, which could be bad for the industry.

“A more competitive Sprint combined with increasing pressure on voice ARPU does not bode well for medium-term growth of carriers with significant wireless exposure,” Hodulik said in a research note.

Soleil Securities analyst Todd Rethemeier said that unlimited price plans were inevitable.

“I think over the next couple of years the entire industry will be forced to follow suit,” he said.

Nelson estimated U.S. revenue from mobile calls had fallen to 6 cents a minute in 2005 from 10 cents a minute in 2003, before flattening at about 5.5 cents a minute in the last two years.

Verizon shares closed down $2.49 at $35.34 on the New York Stock Exchange. AT&T shares closed down $1.99 at $35.89. Sprint shares closed down 34 cents at $9.23.

Additional reporting by Ritsuko Ando, Editing by Toni Reinhold

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