2nd UPDATE:Verizon, AT&T Unveil Unlimited Wireless Call Plans

Feb.19, 2008 in Market Outlook

Last Update: 2/19/2008 3:03:38 PM

(Adds comments from analysts, context, updates share prices.)

By Roger Cheng
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)–Verizon Wireless and rival AT&T Inc. (T) unveiled plans
Tuesday offering unlimited cell-phone calls for a flat rate, crossing a key line
in the transformation of wireless service from a premium offering into a
commodity.

The move, which appeared to be timed to get ahead of a similar plan expected from
Sprint Nextel Corp. (S), kicks off a new, more aggressive phase of competition
over what has been the telecommunications industry’s cash cow. While the flat
rates - around $100 - for now only affect high-end customers, they set wireless
down the path of local and long distance service, both of which saw prices spiral
downward after moving to unlimited calling models.

Sprint and Deutsche Telekom AG’s (DT) T-Mobile US may follow with more aggressive
pricng plans of their own. The pricing changes show that with sales growth
slowing as potential users get tapped out, carriers expect growth to come mainly
from taking customers from each other. Meanwhile, the wireless players will look
less to voice and more to data services such as text, video and Internet access
for growth.

“We believe Verizon’s announcement is another data point that supports our thesis
that wireless sector performance remains at risk in ‘08, given the backdrop of
slowing industry growth and deeper price competition,” Citigroup analyst Michael
Rollins wrote in a research note. “While this rate plan introduction is not at
the sweet spot of customer spending, we believe any price competition fostered by
either of the two share leaders in the sector suggests that Verizon and AT&T are
willing to let go of some pricing and margin upside in the near-term to stimulate
faster growth and share gains.”

Shares in AT&T and Verizon Communications Inc. (VZ), which co-owns Verizon
Wireless with Vodafone Group PLC (VOD), both are down sharply in recent trading,
with AT&T down 5.5% at $35.81 and Verizon down 5.4% to $35.77.

Verizon Wireless, which has long competed on the basis of its claim to have a
better network, will charge subscribers $99 a month to use their handsets to call
anyone in the U.S. at any time. AT&T will charge $99.99, with the plan available
on all devices and roaming charges being eliminated.

In launching their plans nationwide, Verizon Wireless and AT&T beat rival Sprint
to the punch. There have been rumblings that Sprint was considering a similar
move. New Chief Executive Dan Hesse is a fan of simplification and pioneered the
flat-rate plan at the old AT&T Wireless in the late 1990s. He brought that vision
as the CEO of Embarq Corp. (EQ) before taking the reins at Sprint.

The company has rolled out its Sprint Unlimited Access Pack - which offers
unlimited voice calling, text messages, Web browsing and email for $119.99 - but
only in parts of Northern California, Philadelphia, Minneapolis and Tampa.

Verizon Wireless called its plan a “game changer.” UBS analyst John C. Hodulik
agreed, saying the plan will force an aggressive response from Sprint, which will
have to offer better prices to stem further losses of subscribers to Verizon and
AT&T.
“Given this move by Verizon, we now believe Sprint’s pricing will be more
aggressive than previously expected,” Hodulik wrote. “A more competitive Sprint
combined with increasing pressure on voice (revenue per user) does not bode well
for medium-term growth of carriers with significant wireless exposure.”

Sprint shares were 2.2% lower at $9.36 in recent trading.

Citigroup analyst Rollins, figuring only 2% to 8% of users pay more than $100 a
month for wireless voice service, thinks the new plan could take $1 to $4 off
Verizon Wireless’ average monthly revenue per user.

Wireless carriers have seen their voice revenue growth stagnate amid stiff
competition and are looking to data services for growth.

“Data is clearly emerging as an increasing contributor…to our revenue stream,”
said Mike Lanman, chief marketing officer for Verizon Wireless.

The carrier hopes its unlimited-use plan will attract high-end customers looking
for a consistent cellphone bill. Both consumers and business customers will be
able to sign up for the plan.

“The market (for high-end users) is getting bigger as people rely more and more
on wireless,” Lanman said.

Other flat rate plans are already available in limited fashions. Sprint’s Boost
Unlimited service offers a monthly $45 plan that allows for unlimited calling to
anyone in the U.S., but the caller must stay within a specified home region. For
$109.99, T-Mobile USA subscribers get 2,500 anytime minutes in addition to
unlimited nights and weekends.

Ralph de la Vega, president and chief executive of AT&T’s wireless business,
said, “This is a highly competitive market and we’re committed to moving fast to
meet customer needs.”

-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com

(END) Dow Jones Newswires

February 19, 2008 15:03 ET (20:03 GMT)

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