Just as the big six wireless carriers have promised to stabilize prices for voice minutes in a historically volatile market, momentum is building for another fight in the emerging market for high-speed data.

Obscured by the hubbub last week when Sprint PCS ( PCS) launched high-speed wireless data was a disturbing trend. Among the big six operators offering varying degrees of so-called 2.5G or 3G data services, research showed Sprint already was undercutting the market.

Early evidence suggests Sprint PCS is charging users on average across its myriad pricing plans approximately $1.15 per megabyte of usage, according to research conducted by technology research firm ARS.

"It looks like we have a data price war on the horizon," said ARS wireless data analyst Suzzana Ellyn. "Sprint's introduction is making other carriers rethink their pricing. There's obviously some sort of war going on between AT&T Wireless ( AWE), Sprint and Verizon Wireless."

Expect this trend to accelerate in the coming months. Consider this: AT&T Wireless told Wall Street analysts recently that it is preparing to lower its prices in the next 60 days. Sprint PCS' data pricing plan already undercuts the competition. And VoiceStream plans to launch a very aggressive unlimited data and voice plan for phone/PDA devices by September.

"Is there price competition?" U.S. Bancorp Piper Jaffray analyst Bill Crawford asks. "It's emerging." Crawford cautioned that data revenue currently make up a tiny share of total revenue and will not impact guidance for this year.

Sprint PCS, for instance, revealed recently that less than 2% of its revenue comes from 2G data but expects the percentage of revenue from data to rise in the coming months.


Information Wants to Be Free
Data pricing among carriers
Carriers Price/megabyte Average monthly data pricing per customer Average monthly data volume per customer
AT&T Wireless $1.43 $57.34 40MB
Sprint PCS $1.15 / $1.25 $61.50 53MB
Verizon Wireless $1.30 $86 66MB
Cingular $4.25 $25 6MB
VoiceStream $3.41 $30 9MB
Nextel $4.38 $32 7MB
Source: Research from ARS Inc.
Averages were calculated based on pricing plans and not actual consumer spending habits. Sprint PCS's $1.15 per megabyte includes free introductory offer for first three months.

The recognition of data revenue on any significant scale remains, by the most optimistic estimates, about two years away. But analysts warned that a pricing war this early in the game could crimp carriers' ability to recoup hundreds of billions of dollars invested to build out high-speed networks.

Moreover, what's disturbing about the trend is the fact that the carriers may be missing an opportunity to educate potential data users to shop for advanced features rather than price.

"While price is a weapon for attracting users, the problem is that it becomes too competitive, data becomes a commodity," said Crawford. "The problem is most carriers are not differentiating wireless data services."

First Blood

Ahead of Sprint PCS' highly anticipated launch, Verizon Wireless, a joint venture between Vodafone ( VOD) and Verizon ( VZ) sought to undercut the competition in May by offering an unlimited data-pricing plan geared toward high-volume business users, priced at $99.

At the time, Sprint PCS CEO Chuck Levine told analysts and reporters at a conference that the company had no plans to engage in a price war for either voice or data. With jittery investors leaving the sector in droves, and subscriber growth slowing dramatically, companies have attempted to convince Wall Street that the crushing price wars of the past three years finally were coming to a halt.

"We're not offering the most minutes," Levine told analysts on the company's second quarter earnings conference call in July. "We don't have to."

Despite those statements, and only days before Sprint's stealth launch last week, Verizon Wireless attempted to steal some thunder by giving new subscribers up to $150 back for equipment and a free month's worth of service after signing up for a one-year or two-year plan for unlimited service. (Sprint PCS also is offering three-month trial for its PCS Vision high speed data service for new customers.)

Roots

Pricing pressures threatened the industry about three years ago and were exacerbated by a battle for market share among six major competitors in the mid-to-late 1990s.

A slew of new competitors "changed the marketing model," said Bernstein Research wireless services analyst Alexander Trofimoff. " While everything was sold by the minute and carriers had incentive to keep prices high, the U.S. model went to a bundled market."

Trofimoff said voice pricing per minute has plunged 30% to 40% every year since 1998. Whereas wireless carriers once charged subscribers by the minute, they were all eventually forced to offer bucket rates that drove per-minute charges down to an estimated 12 cents to 13 cents from 20 cents in 1998. On some bucket plans, prices per minute dove as low as a penny. (The 12 cents were calculated by an average based on usage, rather than nominal rates offered to users.)

But Trofimoff notes that despite such price drops, average revenue per subscriber, a critical metric in the wireless industry, has remained fairly stable. He also countered the suggestion that Sprint PCS' pricing plan actually indicated a pricing war in development and described such price-undercutting measures as an early period of experimentation.

"It's difficult to define a pricing war when a product is brand new," he said. "What the carriers are doing today is experimenting with different price points to determine the elasticity of the product. They're really doing it quite carefully."

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