Verizon Wireless-AT&T 'Price War' May Boost Revenues

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Sprint Nextel May Follow Suit

AT&T and Verizon Wireless are not alone in charging low prices for unlimited talk. T-Mobile USA offers an unlimited talk plan for $60. On Jan. 12, MetroPCS (PCS) announced a $40 plan that includes unlimited talk, text, Web access—and even regulatory fees and local and state taxes.

More price declines may follow. Sprint Nextel (S) may reduce prices, says Todd Rethemeier, an analyst at Hudson Square Research. "I suspect Sprint will probably have to respond, as well; you need something to attract attention," he says.

"We're always looking at our pricing and evaluating whether changes are needed," Emmy Anderson, a spokeswoman for Overland Park (Kan.)-based Sprint, says in an interview with Bloomberg News. "The plans that we offer right now, we really feel are giving customers the best value in wireless."

In the next one to two years, unlimited-plan prices may drop by another 25% to 30%, Sharma estimates. At some point, the revenue additions from increased adoption of data plans may become smaller than the revenue lost in the cuts. Industrywide revenue per user may drop 2% this year, compared with 1% in 2009, Rethemeier estimates.

The continued price pressure may encourage further consolidation in the U.S. wireless industry. Analysts have often speculated that Leap Wireless (LEAP) and MetroPCS may combine or that T-Mobile USA may ally with Sprint. T-Mobile and MetroPCS declined to comment, while Leap didn't respond to a request for comment. "Until we see more consolidation, we won't see more stability in pricing," says Michael Mahoney, senior managing director at Falcon Point Capital, who says he's steering clear of wireless carrier stocks. "Unfortunately, price wars are awful to margins," Mahoney says. "I can't bring myself to buy these stocks when price wars are going on."

With Amy Thomson in New York.

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