AT&T, Verizon May Fall Further as Flat Rates Portend Price War

(Bloomberg) -- AT&T Inc. and Verizon Communications Inc. declined for the second straight day in New York trading after adopting flat-rate mobile calling plans that could be the opening salvos in a price war.

AT&T and Verizon Wireless, the two top U.S. wireless carriers, announced plans yesterday to sell unlimited calls for a flat fee of $99.99 a month. Credit Suisse cut its ratings on shares of AT&T and Verizon Communications, co-owner of Verizon Wireless. Robert W. Baird & Co. lowered its AT&T rating to match its neutral stance on Verizon Communications.

The unlimited plans, including another announced by T-Mobile USA Inc., pose a competitive challenge as U.S. mobile carriers already struggle to reach the remaining fifth of Americans that don't yet have a wireless phone. While analysts estimated the new rates may not hurt sales, they worried about future price cuts.

``There's no going back,'' said Credit Suisse's Christopher Larsen, who cut AT&T and Verizon shares to a neutral rating from the equivalent of a buy recommendation. ``It's extremely unlikely prices go up from $99, so now you've created a ceiling for what unlimited pricing will be.''

AT&T, based in San Antonio, fell $2.41, or 6.7 percent, to $33.48 at 10:13 a.m. in New York Stock Exchange composite trading, the biggest drop in five years. The shares lost 5.3 percent yesterday. New York-based Verizon declined $1.60, or 4.5 percent, to $33.74, extending yesterday's 6.6 percent loss.

While the pricing plans may only affect the less than 5 percent of subscribers who pay more than $100 a month, they will convince more customers to replace their home phones with mobile handsets, said Larsen, who is based in New York.

Upper Tier

The plans announced yesterday aim at the upper tier of customers who spend about twice what an average mobile-phone user paid last quarter, as reported by AT&T and Verizon.

The new rate plans reminded Stanford Group Co.'s Michael Nelson of the day the old AT&T Wireless began selling local and long-distance service for one price.

``It turned the wireless industry upside down,'' the New York-based analyst said in an interview yesterday. ``It caused all the carriers to come up with completely new calling plans, to really revisit their entire business models.''

The flat-rate movement ``raises the risk profile for a pricing war across the entire industry,'' said Nelson.

The former AT&T Wireless, which is now part of AT&T's mobile-phone unit, started its Digital One Rate plan in 1998, erasing the distinction between local and long-distance calls on mobile phones, keeping rates flat regardless of the caller's location.

 

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