Wednesday, February 20th, 2008
Sprint Rumored to Undercut Rival Flat Rates, Price War on the Horizon
By Mike Caggeso
Associate Editor
Sprint Nextel Corp. (S) is expected to offer flat-rate calling plans - with prices that could undercut competing plans by up to 40% - a strategic move that could rattle rival service providers and stoke a price war, Reuters reported.
Sprint’s actually late to the parade, as many rivals already have flat-rate plans. On Tuesday, Verizon Communications Inc. (VZ) and AT&T Inc. (T) unveiled $99.99/month plans for unlimited calls. T-Mobile USA followed up with a similar plan and price, but included text messaging in the package.
Meanwhile, Sprint is in dire need of a resurgence. Last year, its stock price dropped 31% as the company lost 1.2 million customers with wireless contracts in 2007.
A UBS AG (UBS) analyst went so far as to lower his guidance on AT&T and Verizon, thinking that the companies would have to struggle to compete with Sprint’s lower prices.
"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," UBS analyst John Hodulik wrote in a research note.
And he’s not alone.
Phil Cusick, an analyst for The Bear Stearns Cos. Inc. (BSC), said AT&T and Verizon might have to offer deeper price cuts to compete.
"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.
Historically speaking, the telecommunications industry is especially prone to intense rivalries. And consumers have a lot of sway in the matter.
For example, look no further than the intense price war waged by AT&T, Sprint, and MCI Inc. over a decade ago. That rivalry was highlighted by quick cuts announced boldly on national television. Companies would also make calls to consumers who switched service to try and entice them back.
One can also argue that such drastic undercutting taints the reputation of the entire industry. If a plan is knocked down 40% in price, consumers can legitimately wonder if these telecom providers have been overcharging them for years, eroding customer loyalty.
And that only makes jumping ship easier with each new and lower price.
Service providers aren’t the only telecom companies waging war. As mobile phones evolve from phones to all-purpose devices, manufacturers are racing to offer phones with more features.
News and Related Story Links:
- Money Morning:
Cell Phone Makers Add Features and Up the Ante in a High-Risk/High Return Market for Investors
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