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Sprint Expected to Undercut Rivals` Call Plans

By Reuters -  |  Posted 2008-02-20 Print this article Print

No. 3 U.S. mobile service provider Sprint Nextel Corp is expected to offer flat-rate calling plans at up to a 40 percent discount to its rivals, hurtling the industry into a price war, analysts said.

NEW YORK (Reuters) - No. 3 U.S. mobile service provider Sprint Nextel Corp is expected to offer flat-rate calling plans at up to a 40 percent discount to its rivals, hurtling the industry into a price war, analysts said on Wednesday.

The two largest U.S. mobile service providers, Verizon Wireless and AT&T Inc, on Tuesday unveiled $99.99-a-month plans for unlimited calls. T-Mobile USA went a step further by including text messaging in that price.

Sprint has yet to respond, but analysts say it could be considering an unlimited calling plan for as low as $60 a month in a bid to stem customer defections.

That could force AT&T and Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc, to cut their prices or face losing customers.

"Our bigger concern rests with Sprint's plans and the potential for future additional competitive responses," Robert W. Baird analyst Will Power wrote in a research note.

Verizon shares fell $1.58, or 4.5 percent, to $33.76 in morning trade on the New York Stock Exchange after falling more than 6 percent on Tuesday.

AT&T shares fell $1.49, or 4.1 percent, to $34.40, also on the NYSE, after closing down more than 5 percent on Tuesday.

Sprint fell 2.9 percent to $8.96 after closing down 2.6 percent on Tuesday.

UBS analyst John Hodulik cut his earnings, revenue and share price estimates for AT&T and Verizon, citing a belief that Sprint is considering launching an unlimited calling plan with a monthly fee of $60 to $80.

He said the share price declines on Tuesday meant investors already assume Sprint will sell an $80 plan. But he said Sprint's response may be even more aggressive.

"Additional downside in the shares likely exists if Sprint launches an unlimited plan for $60 per month — a real possibility given the current state of competition," Hodulik wrote in a research note.

He said that while he doubts that AT&T or Verizon would match a $60 to $80 plan, he sees the introduction of plans in that range hurting their customer growth.

As a result, he cut his 2008 earnings estimate for Verizon to $2.63 a share from $2.70 and reduced his AT&T estimate to $3.17 from $3.19.

Hodulik lowered his 12-month share price target for Verizon to $41 from $51, and cut his target for AT&T to $41 from $49.

Bear Stearns analyst Phil Cusick said in a research note that the share price drops show real concern that AT&T and Verizon will have to offer deeper price cuts.

"We believe the stock sell-off implies that Sprint will undercut very aggressively and that AT&T and Verizon will eventually be forced to respond," he said.

If Sprint charges $75 a month for unlimited calls, it would only gain a slight edge over rivals, Cusick said.

"If instead Sprint prices closer to $60 for unlimited voice, that would create much more marketing stir and be a real differentiator, but would risk an eventual response from competitors," he said.

(Reporting by Sinead Carew; editing by John Wallace)

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