January 15, 2010 / 2:07 PM / in 8 years

Verizon, AT&T cut fees, expand price war

NEW YORK (Reuters) - The two largest U.S. wireless carriers, Verizon and AT&T, cut their rates on Friday, escalating a price war that began with smaller carriers.

Verizon Wireless, the biggest U.S. mobile service, said it would cut prices 30 percent for voice customers. It was followed by similar price cuts from its main rival, AT&T Inc.

Shares of AT&T and Verizon Wireless owners Verizon Communications Inc and Vodafone Group Plc ended lower, as did the broader market.

Verizon Wireless said on Friday that it was replacing a $99.99 voice plan with a $69.99 plan that includes unlimited phone calls and an $89.99 plan that also includes text messages, while it also required more customers to pay for data services.

AT&T said it would offer unlimited voice and data for $99.99, equating to a roughly $30 price reduction.

Verizon said it was ending a data service plan for $19.99 a month for 75 megabytes of data downloads such as Web surfing. Instead it is adding a $30 unlimited service plan for cheaper multimedia phones and offering a $9.99 per month plan for 25 megabytes of downloads.

The news comes a year after smaller carriers like Deutsche Telekom’s T-Mobile USA and Sprint Nextel unit Boost Mobile introduced lower-cost plans, sparking concerns of a price war.

Analysts at the time had said AT&T and Verizon may be able to sidestep a margin-denting price war because their customers are willing to pay a premium for the latest phones, faster data services and general reputation for more reliable networks.

Some experts still believe the impact is limited. Pacific Crest Securities analyst Steve Clement said only about a million customers use Verizon’s $99.99 a month unlimited voice service today.

“Any time a market leader changes prices it causes concern, but they’re really cutting prices at the high end of voice. That’s a small portion of the market,” he said.

Clement also said service fees at smaller competitors such as Leap Wireless International Inc and MetroPCS Communications Inc are still much cheaper than Verizon’s new offering.

CUTTING CANCELLATIONS

Verizon’s Chief Financial Officer John Killian told analysts on a conference call that voice revenues would initially fall but that the changes would eventually help cut customer cancellations and increase revenue and earnings before interest, taxes, depreciation and amortization.

Lowell McAdam, the CEO of Verizon Wireless, also told analysts that the company would increase its focus on smartphones, like Motorola Inc’s Droid and Palm Inc’s Pre Plus, and already has plans to sell an additional 20 models this year.

However, the executive said the company would cut the overall number of phone models it sells from a current line-up of 80 phones to 50 models, and this number would come down even further over time.

Some investors took this news as a positive for smartphone makers like Palm, whose shares rose 5.6 percent on Friday, and bad news for makers of cheaper phones. LG Electronics and Samsung Electronics are big suppliers of cheaper phones for Verizon Wireless.

“It helps out the smartphone vendors. They’ll clearly be pushing smartphones more.” said Morgan Keegan analyst Tavis McCourt, “It hurts Samsung and LG.”

The changes to data fees also come as cell providers look for ways to ease pressure on their data networks. Rising popularity of Web-capable phones has vastly increased data use.

AT&T’s mobile chief said late last year that he was looking for ways to ease data usage but did not elaborate and the move on Friday did not appear to include any such moves.

Sprint said its service fees are still cheaper than Verizon Wireless.

Shares of Verizon ended down 2.1 percent on Friday, while Vodafone shares lost 1.5 percent in London. AT&T shares also ended down 1.5 percent.

Reporting by Sinead Carew; editing by Gerald E. McCormick and Tim Dobbyn Keywords: VERIZON/

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