According to analysts, mobile service provider Sprint-Nextel is expected to offer flat-rate calling plans at up to a 40% discount to its rivals, possibly hurtling the industry into a price war. Although Sprint has yet to respond and spokeswoman Leigh Horner declined comment on any plans for future offers, analysts say the company could be considering an unlimited calling plan for as low as $60 a month to stem customer defections. This move comes after 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, while T-Mobile USA went a step further by including text messaging in that price.
Wall Street seems none to happy about the news. "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. "It"s sinking in how bad this could be for the industry," said Todd Rethemeier, an analyst for SurTerre Research, which is associated with Soleil Securities (full disclosure: Rethemeier owns some shares in AT&T.)
According to Rethemeier, if the new plans spark more rate cuts including a $70 plan from Sprint, AT&T and Verizon could see their wireless average monthly revenue per user be flat in 2008 and fall by 1 to 3 percent in 2009. Unless slowing subscriber growth cuts costs in a market where about 85 percent of subscribers already have cell phones, the fall in revenue could hurt carrier margins. "In a weak economy we could see a scenario where more people cut the chord at home and go completely wireless," he said. "These plans actually encourage that."