Rumbles of Wireless Price War Getting Louder

Three of the four largest wireless carriers rolled out new flat-fee monthly subscription options that let users talk as much as they want, sparking concerns among investors about a profit-sapping price war in the mobile space.

Verizon, AT&T (NYSE: T) and T-Mobile all announced all-you-can-consume plans within hours of each other on Tuesday. Verizon broke the ice, saying it would offer power users the opportunity to get unlimited voice minutes for the first time.

All three priced their plans at US$99, with T-Mobile's plan including both voice minutes and unlimited text messages.

A New Price War?

So far, only Sprint Nextel (NYSE: S) has not joined the fray, but that carrier is known to be testing an all-you-can-consume plan for both data and voice in some limited markets, and it may need to roll out a lower-cost plan to keep pace with its stronger rivals.

Fears that a new price war would break out and damage the profits of wireless companies helped drive down the shares of the major companies sharply in morning trading Wednesday.

Verizon shares gave up more than 5 percent to fall to $33.45, while AT&T stock plunged more than 7 percent to $33.18. Sprint shares were also down, falling nearly 6 percent to $8.69.

Not for Everyone

The shifts are historic because they represent a new way to price wireless plans, telecom industry analyst Jeff Kagan told the E-Commerce Times. However, they are designed to appeal to a relatively small portion of each carrier's customer base.

"This only makes sense to a small percentage of customers, say 10 to 15 percent on the high side," Kagan said. "This is really only for a small group of very heavy users," such as those who use more than 2,000 voice calling minutes per month.

With 255 million wireless subscribers in the U.S., 25 million to 30 million users could benefit from the plans.

Once Verizon announced the move, others had to follow suit, Kagan noted. "That means we won't see one carrier winning customers from another" because of the plans. "Since it's available from almost all providers, it won't be a reason customers will switch providers."

Sprint had been known to be testing a flat-rate plan in some markets, but Verizon got the jump on all of its competitors. The wireless carrier -- a joint venture between Verizon and the UK's Vodafone (NYSE: VOD) -- said the shift reflects the adoption of wireless as the main and sole phone service for many subscribers.

'Moving Fast'

"Wireless has evolved, and more people than ever depend on it as a primary means of communication in every aspect of their lives," said Mike Lanman, Verizon's Wireless chief marketing officer.

AT&T rolled out its plan about five hours after Verizon's announcement, though the plans will not be available for purchase until Friday. "This is a highly competitive market, and we're committed to moving fast to meet customer needs," said AT&T Mobility CEO Ralph de la Vega.

By the end of Tuesday, T-Mobile has rolled out its plan, which includes talk minutes as well as text, picture and instant messages.

Will Sprint Follow Suit?

That leaves only Sprint as the last major carrier yet to offer such a plan. The company could actually use the fact that it is last to the party to its advantage, said Banc of America Securities analyst David Barden. Sprint could price an all-you-can-eat plan at around $80 as a way to both prevent more customers from leaving -- a long-term trend at the carrier -- and to entice customers to jump to its network.

Sprint has been testing an unlimited calling plan priced at around $120 per month for voice and data in San Francisco, Minneapolis, Philadelphia and Tampa, Fla.

The average cell phone user consumed 714 minutes of voice time per month in 2006, according to data from the Federal Communications Commission. That's up sharply from past years, but at the same time, the per-minute rates carriers can charge have dropped significantly.

Banking on Data

Many carriers are now banking on revenue from data services -- driven by smartphones and other devices -- to replace sinking voice revenue. For now, data revenues are largely unpredictable.

While the new plans may appeal most to road warriors and those who don't want to worry about roaming charges, even those who only occasionally go over their monthly allotment may embrace the approach, said Gartner (NYSE: IT) analyst Ken Dulaney.

"Some users will do the math and add up what they're spending on a home line and their mobile and decide this new flat fee is the impetus to give up their land line once and for all," Dulaney told the E-Commerce Times. Carriers may also hope that they can get users comfortable with flat-pricing and move them onto data-and-voice plans over time.

In fact, Verizon also rolled out new wireless broadband plans on Tuesday, meant to appeal to power users of the mobile Web, such as those who download music and video directly to their phones.