Cheaper, all-you-can-talk mobile phone service is good news for consumers. But will a price war burn wireless carriers?
Yesterday, Verizon Wireless, AT&T, and T-Mobile — three of the top four U.S. wireless carriers — slashed prices on their high-end calling plans. Each carrier will now sell unlimited calling for $99 per month, replacing plans that sold as high as $199 per month.
These cuts alone are no big deal — Credit Suisse analyst Christopher Larsen estimates that “well under” 5% of subscribers pay more than $100 per month. But what if the cuts are just opening salvos in a pricing war? Some suggest, for example, that troubled Sprint Nextel will be even more aggressive, offering unlimited service for as little as $60 per month.
That scenario, coupled with a gloomy outlook for the U.S. economy, prompted Larsen to downgrade the telecom sector from “overweight” to “marketweight” today. He also slashed EPS estimates. Not only would a price war lower margins, but AT&T and Verizon could see a double whammy if the cut-rate pricing convinces more home phone subs to finally drop their land lines. Specific cuts:
- Sprint Nextel 2008 EPS reduced from 52 cents to 49 cents, 2009 EPS reduced from 46 cents to 31 cents
- AT&T 2008 EPS reduced from $3.08 to $3.03, 2009 EPS reduced from $3.51 to $3.44
- Verizon 2008 EPS reduced from $2.66 to $2.55, 2009 EPS reduced from $3.09 to $2.92
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