Sprint May Unveil Rival Plan, Spurring Price War

No. 3 U.S. mobile-service provider Sprint Nextel is expected to offer flat-rate calling plans at up to a 40 percent discount to its rivals, hurtling the industry into a price war, analysts said on Wednesday.

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The two largest U.S. mobile-service providers, Verizon Wireless and AT&T , on Tuesday unveiled $99.99-a-month plans for unlimited calls. Deutsche Telekom's T-Mobile unit went a step further by including text messaging in that price.

Sprint has yet to respond, but analysts say it could be considering an unlimited calling plan for as low as $60 a month in a bid to stem customer defections.

That could force AT&T and Verizon Wireless, a venture of Verizon Communications and Vodafone Group , to cut their prices or face losing customers.

"Our bigger concern rests with Sprint's plans and the potential for future additional competitive responses," Robert W. Baird analyst Will Power wrote in a research note.

UBS analyst John Hodulik cut his earnings, revenue and share price estimates for AT&T and Verizon, citing a belief that Sprint is considering launching an unlimited calling plan with a monthly fee of $60 to $80.

He said the share-price declines on Tuesday meant investors already assume Sprint will sell an $80 plan. But Sprint's response may be even more aggressive, he added.

"Additional downside in the shares likely exists if Sprint launches an unlimited plan for $60 per month -- a real possibility given the current state of competition," Hodulik wrote in a research note.

He said he doubts that AT&T or Verizon would match a $60 to $80 plan, but the introduction of plans in that range would hurt their customer growth.

As a result, he cut his 2008 earnings estimate for Verizon to $2.63 a share from $2.70 a share and reduced his AT&T estimate to $3.17 a share from $3.19 a share.

Hodulik lowered his 12-month share price target for Verizon to $41 from $51, and cut his target for AT&T to $41 from $49.

Bear Stearns analyst Phil Cusick said in a research note that the market's reaction shows real concern that AT&T and Verizon will have to offer deeper price cuts.

"We believe the stock sell-off implies that Sprint will undercut very aggressively and that AT&T and Verizon will eventually be forced to respond," he said.

If Sprint charges $75 a month for unlimited calls, it would only gain a slight edge over rivals, Cusick said.

"If instead Sprint prices closer to $60 for unlimited voice, that would create much more marketing stir and be a real differentiator, but would risk an eventual response from competitors," he said.

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