Verizon’s pitch to freaked-out investors, who have pushed the stock down after it announced a new $99 all-you-can-eat wireless plan: Relax. We’ve got this under control.
The more nuanced argument, laid out in a SEC filing summarizing a Wednesday conference call: Verizon says only 305,000 of its subscribers — just 0.5% of its sub base — have wireless calling plans priced at more than $99.99 per month. Those customers spend an average of $125 to $135 per month on phone calls. So if every one of those customers drop down to $99 all-you-can-eat plans, Verizon is looking at $7.6 million to $10.7 million in lost revenue per month — money it thinks it will easily make up by getting lower-priced customers to upgrade.
This makes sense — if Verizon (VZ) was going to stop cutting rates. But since announcing its new deal Tuesday morning, it’s already found itself undercut: Smaller rival T-Mobile matched the pricing, but is including unlimited text/photo/instant messaging. Some expect Sprint Nextel (S) to be even more aggressive when it refreshes its unlimited-calling plan, in an effort to make up for lost customers. If Sprint decides to make unlimited-calling a $80 or $60 per month subscription — as some have suggested — Verizon and its rivals might have to cut prices even more. That could hurt.
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