Monday offered fresh evidence that a damaging pricing war is gathering momentum among the nation's major wireless carriers.
Shedding the customary prattle about its superior features and focusing on muscling competitors such as
rolled out a plan to offer unlimited-use pricing for business customers. Observers say Verizon is hellbent on seizing the advantage in the lucrative corporate market as the wireless upgrade cycle remains a topic of debate.
The move by Verizon Wireless, a Bedminster, N.J.-based joint venture of
and the U.K.'s
, comes just months before Sprint is due to launch its high-speed Internet wireless network this summer. The move suggests the wireless sector could soon face the kind of debilitating price erosion that has already visited other telecom sectors.
Amid Monday's marketwide selloff, Verizon shares dropped 74 cents, to $42.40, Sprint PCS shares slid 29 cents, to $9.72, and
stock dropped 42 cents, to $7.43.
Sky's the Limit
Verizon Wireless plans to give business users unlimited data usage with restrictions for $100 a month. The company would also offer business users set rates ranging from $35 to $75 for certain data capacities. Consumers would still have to pay per-minute charges on their choice of either data or voice minutes, beginning at $35 for 150 minutes for either voice or data, up to $75 for 600 minutes. Verizon launched the plan in several markets in the first quarter.
Numbers like that have some observers worrying about the next shoe to drop. "Given where Verizon has started, it's possible Sprint will price their services lower than Verizon's," said Thomas Wiesel Partners analyst Ned Zachar.
Though the sector remains relatively healthy when you consider the bloodbath that the rest of telecom has become, wireless investors are no stranger to pricing concerns. Pricing pressures for voice calls recently forced AT&T Wireless to slash its fiscal 2002 EBITDA forecast by about $100 million to $300 million, with growth now expected to be in the low to mid-20% area. Carriers are hoping to offset declining revenue and declining growth in new subscribers by enticing consumers and businesses to add higher-priced new features.
To be sure, it remains unclear what the pricing for Sprint PCS' plan will be, but the No. 4 carrier is clearly exploring every avenue toward achieving its declared EBITDA goals of $3 billion, or double last year's. Last week Sprint announced the funding of a joint venture with Virgin Mobile USA to create a separate brand to target the under-30 set for prepaid wireless services. "I think it's still early overall," Zachar added. Companies "are going to experiment with what the right
pricing combination will be."
The slow rollout of the widely anticipated wireless upgrade cycle has given the companies a lot of time to experiment. Verizon, the nation's No. 1 wireless carrier, launched its 2.5G system earlier this year, called Express Network. It claims to deliver data at up to 144 kilobits per second, though it actually reliably delivers between 40 kbps and 60 kbps. Sprint PCS plans to launch its network toward the end of the summer, and claims it can deliver 3G speeds.
That said, upgrading facilities has already put companies such as AT&T firmly into the red, a disturbing place to be nowadays, with the sector shouldering the obligatory massive debt burden. This year alone, AT&T Wireless plans to invest about $5.3 billion into new towers and facilities, having spent about $5 billion last year. In April it issued $3 billion in bonds, raising total debt to $11.2 billion.
Still, the companies appear certain to stay the course, at least for now. In a wireless technology conference sponsored by mobile business consulting firm Consect,
USA CEO Nobuharu Ono reaffirmed AT&T Wireless' commitment to deploy its 2.5G service nationwide by the end of this year. DoCoMo is a 16% minority owner of AT&T Wireless and is providing technology consulting to the U.S. wireless carrier as it prepares to add new functions to its mMode data services, expected as early as this fall.
Carriers have salivated for years at DoCoMo's raging success overseas. In DoCoMo's gadget-obsessed Japan home market, revenue from data services makes up about 18% of the company's average revenue per user, more commonly known in industry parlance as ARPU.