Subject: [NEXTEL-1] Consumers win in wireless price wars.html

From: [email-masked]
Date: Mon, 30 Dec 2002 14:11:10 -0500

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Posted 12/29/2002 10:40 PM     Updated 12/30/2002 8:07 AM

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Consumers win in wireless price wars
By Andrew Backover, USA TODAY

Unprecedented discounts on cell phones and service plans make this the best time in memory to be a wireless consumer. But customers' gains could mean pain for the USA's major wireless carriers.

They risk revenue and profit hits as they battle slowing customer growth. With 137 million customers — more than 50% of the U.S. market — already signed up, carriers are getting more aggressive.

RELATED ITEMS

Prices for color handsets after promotional discounts and rebates:

Type of phone

Price1

Chg.2

Verizon Wireless

Motorola T720

$50

-83%3

AT&T Wireless

Sony Ericsson T68i

$150

-25%

Sprint PCS

Sanyo SCP 4900

$50

-72%

Cingular Wireless

Sony Ericsson T68m

$99

-72%

1 — Recent prices; 2 — Change since September; 3 — Includes initial $100 rebate that's still available

Source: The Yankee Group

It's a dangerous prospect, which the hurting long-distance phone and personal computer industries know too well. Once prices drop, it's tough to raise them because consumers will switch to a lower-cost service. Price wars could get hotter in coming years as consumers become able to switch carriers but keep their cell phone number. That could give fickle customers even more leverage. And lower sales could leave carriers with less cash to add new services.

"It's going to continue to be a challenging environment," says W.R. Hambrecht analyst Peter Friedland. "The carriers are primarily competing on price."

Cutthroat tactics have hurt investors in a once-promising sector. Sprint PCS shares are at $4.52, down 82% from a 52-week high. AT&T Wireless shares are $6.11, off 58% from a 52-week high. Even shares of Nextel Communications, which targets more lucrative business customers, are down 18%. Woes include:

Cheaper rates. The Yankee Group says the annual cost of voice plans will decline 26%. AT&T Wireless, for one, offers unlimited calls for $100 a month. Similar plans could drop to $50 to $60, Yankee says.

Sprint PCS offers unlimited data usage, such as Internet access, for $10 a month. That has shocked Wall Street because data usage was supposed to offer growth as voice revenue falls. But Sprint PCS' lowball offer might just replace revenue, not grow it.

While Sprint PCS' offer could get consumers excited about data service and spur future demand, analysts say it gives away the farm too soon. Rivals have yet to follow suit, but they often copy each other. "Once you've gone down that road, there's no turning back," says Yankee wireless analyst Linda Barrabee.

Phone discounts. After huge rebates, some color-screen phones built for games and the Internet now cost $50, down from $180 to $300 months ago. For carriers, which often subsidize the price that consumers pay for phones, the latest aggressive discounts could add to customer-acquisition costs. "It's good for consumers," says Yankee handset analyst John Jackson. "We think these prices are staying low."

Improvement delays. AT&T Wireless, for example, last week said it would delay the debut of its ultra-high-speed network by six months to late 2004 and scale back its launch to four cities from 13.

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