After Cellphone Companies Slash Rates….Mobile price war?

Cheaper, all-you-can-talk cellphone service is good news for consumers. But will a price war burn wireless carriers?

Yesterday, Verizon Wireless, AT&T, and T-Mobile -- three of the top four U.S. wireless carriers -- slashed prices on their high-end calling plans. Each carrier will now sell unlimited calling for $99 per month, replacing plans that sold as high as $199 per month.

These cuts alone are no big whoop -- Credit Suisse analyst Christopher Larsen estimates that "well under" 5% of subscribers pay more than $100 per month. But what if the cuts are just opening salvos in a pricing war? Some suggest, for example, that troubled Sprint Nextel will be even more aggressive, offering unlimited service for as little as $60 per month.

That scenario, coupled with a sucky outlook for the U.S. economy, prompted Larsen to downgrade the telecom sector from "overweight" to "marketweight" today. He also slashed EPS estimates. Not only would a price war lower margins, but AT&T and Verizon could see a double whammy if the cut-rate pricing convinces more home phone subs to finally drop their land lines. Specific cuts:

* Sprint Nextel 2008 EPS reduced from 52 cents to 49 cents, 2009 EPS reduced from 46 cents to 31 cents

* AT&T 2008 EPS reduced from $3.08 to $3.03, 2009 EPS reduced from $3.51 to $3.44

* Verizon 2008 EPS reduced from $2.66 to $2.55, 2009 EPS reduced from $3.09 to $2.92.

http://www.alleyinsider.com/2008/2/after_cellphone_companies
_cut_rates_wall_street_cuts_ratings