Sprint $50 Boost Plan Escalates Price War

Sprint is ready to drop its unlimited price plan on its smaller rivals.
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Squeezed by giants

AT&T

(T) - Get Report

and

Verizon

(VZ) - Get Report

,

Sprint

(S) - Get Report

is ready to drop its unlimited price plan on its smaller rivals.

The No. 3 wireless telco posted a narrower than expected loss in the fourth quarter and vowed to slow the drain of customers from the 4.5 million total defections it suffered last year. The mere suggestion that Sprint may be

mending its morbid business

was enough to send its shares up 27% Thursday.

$50 Weapon

Part of Sprint's remedy lies in its Boost Mobile unit, the prepaid phone service that runs on the Nextel iDEN network. Sprint, already the leader in undercutting the competition with unlimited pricing plans, promises to bolster its subscriber numbers by promoting its new Boost Mobile $50 unlimited everything offer.

In a tough economy, troubled players tend to make waves. Sprint's $50 plan offers unlimited calling, texting and two-way walkie-talkie use. That's about half the price of comparable unlimited plays by Verizon and AT&T.

"I don't think it's good for the industry. It risks accelerating a race to the bottom in unlimited service at a time when network capacity risks being crushed by accelerating adoption of data applications," says Forrester analyst Charles Golvin.

Not only does Sprint lead the corrosive charge, the offer may be sweet enough to entice Sprint's own higher-spending customers to trade down.

Threat to Rivals

This so-called cannibalism, however, may not hurt Sprint as much as other companies forced to match the price. Sprint's prices are already low -- its customers' average monthly phone bill has been stuck at $56 for most of last year. Verizon is lower with an average bill of $51.72, but AT&T, with its popular

Apple

(AAPL) - Get Report

iPhone and higher data charges, averages about $59.59 per month per customer.

"So what if Sprint's customers switch to Boost," says one analyst, who downplays the cannibalization threat.

The real pain will be felt by smaller players like

Deutsche Telekom's

(DT) - Get Report

T-Mobile,

Leap Wireless

(LEAP)

and

MetroPCS

(PCS)

. The latter two players at particular risk because they focus on flat-rate prices in smaller cities and can't match the national free-roaming reach and walkie-talkie features of Boost.

Network Advantage

Another advantage for Sprint is the Nextel iDEN network. Sprint's previous management

neglected the network

, causing its lucrative mobile business team users to flee en masse. After trying to sell the network, one of CEO Dan Hesse's first moves was to try to revive the Nextel unit.

Instead of selling it, Sprint kept iDEN running, writing down its costs and watching capacity grow as users left. To Sprint, iDEN is an under-used resource. While it is far from 3G in terms of data speed, the network does offer the popular two-way radio service that few other carriers have successfully replicated.

"Boost can make this offer," says Forrester's Golvin, "but other providers could not be profitable at this price point."