Verizon Wireless, AT&T in Price Duel

NEW YORK -(Dow Jones)- Verizon Wireless and rival AT&T unveiled plans Tuesday offering unlimited cell-phone calls for a flat rate, crossing a key line in the transformation of wireless service from a premium offering into a commodity.

The move, which appeared to be timed to get ahead of a similar plan expected from Sprint Nextel Corp. (S), kicks off a new, more aggressive phase of competition over what has been the telecommunications industry's cash cow. While the flat rates - around $100 - for now only affect high-end customers, they set wireless down the path of local and long distance service, both of which saw prices spiral downward after moving to unlimited calling models.

Sprint and Deutsche Telekom's T-Mobile US may follow with more aggressive pricng plans of their own. The pricing changes show that with sales growth slowing as potential users get tapped out, carriers expect growth to come mainly from taking customers from each other. Meanwhile, the wireless players will look less to voice and more to data services such as text, video and Internet access for growth.

"We believe Verizon's announcement is another data point that supports our thesis that wireless sector performance remains at risk in '08, given the backdrop of slowing industry growth and deeper price competition," Citigroup analyst Michael Rollins wrote in a research note. "While this rate plan introduction is not at the sweet spot of customer spending, we believe any price competition fostered by either of the two share leaders in the sector suggests that Verizon and AT&T are willing to let go of some pricing and margin upside in the near-term to stimulate faster growth and share gains."

Shares in AT&T and Verizon Communications, which co-owns Verizon Wireless with Vodafone Group, both are down sharply in recent trading, with AT&T down 5.5% at $35.81 and Verizon down 5.4% to $35.77.

Verizon Wireless, which has long competed on the basis of its claim to have a better network, will charge subscribers $99 a month to use their handsets to call anyone in the U.S. at any time. AT&T will charge $99.99, with the plan available on all devices and roaming charges being eliminated.

In launching their plans nationwide, Verizon Wireless and AT&T beat rival Sprint to the punch. There have been rumblings that Sprint was considering a similar move. New Chief Executive Dan Hesse is a fan of simplification and pioneered the flat-rate plan at the old AT&T Wireless in the late 1990s. He brought that vision as the CEO of Embarq Corp. (EQ) before taking the reins at Sprint.

The company has rolled out its Sprint Unlimited Access Pack - which offers unlimited voice calling, text messages, Web browsing and email for $119.99 - but only in parts of Northern California, Philadelphia, Minneapolis and Tampa.

Verizon Wireless called its plan a "game changer." UBS analyst John C. Hodulik agreed, saying the plan will force an aggressive response from Sprint, which will have to offer better prices to stem further losses of subscribers to Verizon and AT&T.

"Given this move by Verizon, we now believe Sprint's pricing will be more aggressive than previously expected," Hodulik wrote. "A more competitive Sprint combined with increasing pressure on voice (revenue per user) does not bode well for medium-term growth of carriers with significant wireless exposure."

Sprint shares were 2.2% lower at $9.36 in recent trading.

Citigroup analyst Rollins, figuring only 2% to 8% of users pay more than $100 a month for wireless voice service, thinks the new plan could take $1 to $4 off Verizon Wireless' average monthly revenue per user.

Wireless carriers have seen their voice revenue growth stagnate amid stiff competition and are looking to data services for growth.

"Data is clearly emerging as an increasing contributor...to our revenue stream," said Mike Lanman, chief marketing officer for Verizon Wireless.

The carrier hopes its unlimited-use plan will attract high-end customers looking for a consistent cellphone bill. Both consumers and business customers will be able to sign up for the plan.

"The market (for high-end users) is getting bigger as people rely more and more on wireless," Lanman said.

Other flat rate plans are already available in limited fashions. Sprint's Boost Unlimited service offers a monthly $45 plan that allows for unlimited calling to anyone in the U.S., but the caller must stay within a specified home region. For $109.99, T-Mobile USA subscribers get 2,500 anytime minutes in addition to unlimited nights and weekends.

Ralph de la Vega, president and chief executive of AT&T's wireless business, said, "This is a highly competitive market and we're committed to moving fast to meet customer needs."

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(END) Dow Jones Newswires

Posted to the site on 19th February 2008