Price war in U.S. mobile market raises fear of profit hemorrhage

Sat Jan 11, 2014 10:49am EST
 
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By Sinead Carew

NEW YORK (Reuters) - New Year's rivalry among U.S. mobile operators has Wall Street worried that the industry's profits could seriously decline.

After months of aggressive moves by T-Mobile US to lure customers from other carriers, No. 2 operator AT&T Inc counter-attacked on January 3 by offering to pay consumers to switch from T-Mobile.

Days later, No. 3 ranked Sprint Corp promised big discounts for family and friend groups. On Wednesday, T-Mobile upped the ante, saying it would pay hefty exit costs for converts.

The moves by Sprint and AT&T come after No. 4 U.S. operator T-Mobile, a long-time industry straggler, was able to report three full quarters of customer growth after four years of losses.

While discounts are always welcomed by consumers, the intensifying competition is a new challenge to a U.S. industry long used to imposing its will on consumers, and analysts fear it could result in the loss of billions of dollars of revenue.

Investors had hoped AT&T and market leader Verizon Wireless would be able to shrug off T-Mobile's moves, since they already control about two-thirds of the market.

AT&T had previously said that T-Mobile's efforts only concerned the most cost-conscious customers, who are not its or Verizon's primary targets.

AT&T stayed on the sidelines for months in the face of public criticism of its services from T-Mobile's outspoken chief executive officer, John Legere. Now that the company is fighting back, even industry leaders could face tighter margins, say analysts.   Continued...

 
Signage for a T-Mobile store is pictured in downtown Los Angeles, California August 31, 2011. REUTERS/Fred Prouser