Sprint Nextel Heats up Wireless Price War
As economic woes and slow consumer spending continue, Sprint Nextel’s Boost Mobile division will offer a prepaid unlimited plan for $50 a month, the carrier said Thursday. Some analysts praised the action. But others worried that it will prompt competitors to cut their prices and hurt profits in U.S. wireless.
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Boost Mobile, Sprint’s prepaid wireless unit, plans to offer unlimited calling, text messaging, wireless Web and walkie-talkie services across the country. A Boost spokesman said the price is lower than those for similar plans offered by flat-rate providers Cricket and MetroPCS. The competitive price reflects market competition and a tough economy that makes some consumers turn to flat-rate unlimited plans, he said. Sprint aims for more “straightforward pricing and predictable payments” that don’t include additional charges like the activation fees, overage charges and extra costs for voicemail and roaming, he said.
Walter Piecyk of Pali Research praised the plan, saying it will not only stimulate the carrier’s prepaid growth but also raise Boost’s revenue per prepaid user from $30. The pricing couldn’t come at a better time, with the weak economy spurring interest in less-expensive unlimited rate plans, the analyst said. Sprint’s market share gains are likely to be far higher than others expect, he said. But he warned that if the economy weakens, $50 will be too much and customers could flip to per-minute plans to reduce their bills. He cited the growth of TracFone, a prepaid wireless provider recently approved to use Universal Services Funds to subsidize its service. Sprint’s new plan shows that the differences between prepaid and postpaid plans are blurring, said analyst William Ho of Current Analysis.
Sprint is going after the flat-rate market targeted by MetroPCS and Leap, and they could be the most vulnerable to Sprint’s move, said JPMorgan’s Mike McCormack. Both companies’ shares fell more than 10 percent Thursday. But McCormack said the appeal of the Boost plan is limited by the lack of high-speed data and by a limited handset lineup.
The offering also will go up against Verizon, AT&T and T-Mobile, because it has regional restrictions, analyst Craig Moffett of Bernstein Research said. “Nobody wants a price war,” he said, warning that one obvious risk is that Verizon and AT&T will match the price. If they don’t, weakening subscribership will result. Price wars are the “worst possible scenario,” he said. At a minimum, the offer will put additional pressure on all carriers’ voice revenue per user, said Thomas Weisel Partner’s James Breen.
AT&T is very happy with its GoPhone prepaid family of products and services, a company spokesman said. He said the carrier won’t speculate on whether it will change its prices. Verizon Wireless is competing very well against the unlimited offers of Leap and MetroPCS, a spokesman said. “Our customers seek value, not solely price.”