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Investors wary as mobile war looms

The upcoming ability of U.S. cell phone customers to switch carriers without losing their number is unnerving investors, who fear a looming price war will hurt industry profits.
/ Source: The Associated Press

Upcoming rules that will allow U.S. mobile phone customers to switch carriers and keep old numbers are unnerving investors, who fear a looming price war will hurt industry profits, even as consumers look to benefit.

TOP U.S. CELLULAR COMPANIES have begun to sweeten deals to keep customers and attract new ones in preparation for the Nov. 24 deadline when carriers must begin allowing customers who change service providers to keep their phone numbers.

Recent moves by firms including Sprint PCS, Deutsche Telekom’s T-Mobile USA and Cingular to extend hours when customers can make unlimited phone calls are harbingers of price-cutting to come, analysts say.

“Santa Claus is coming to town in wireless,” said Guzman & Co. analyst Patrick Comack, who is concerned that the timing of the deadline, just before the holiday season, will intensify the pressure on phone companies to begin lowering prices.

“It’s not going to be rational. It’s going to be irrational. Its going to be a market-share war,” Guzman said.

Another financial analyst said his firm had sold off its stock holdings in AT&T Wireless and shied away from other mobile stocks due to concerns that phone companies would lose customers or make unprofitable choices in order to keep or win subscribers.

“The bottom line concern is the concern there’ll be massive price wars going on,” said Michael Zimm, a technology analyst for investment management firm Ghriskey Capital Partners.

In the run-up to the number switch rule change, shares of Sprint PCS have dropped 29 percent in the past 30 trading days, closing at $4.25 in Friday trading on the New York Stock Exchange.

AT&T Wireless has shed 21 percent in the same period to end at $6.81 on Friday. Verizon, the parent of Verizon Wireless, closed at $32.61, slightly off its $31.10 year-low.

NETWORKS, CUSTOMER SERVICE EYED But some analysts say the industry has grown smarter about how to avoid the race to the bottom that comes when an industry competes solely over prices.

Gartner Group analyst Phil Redman argued that cutting prices would be too easy, and that business customers in particular would be more impressed by improvements to customer service and network coverage than lower rates.

“Most (business) customers would just like to see their bill was right every month. They’d be happy with that,” Redman said, arguing the impact the change will have has been over-hyped.

Sprint PCS, for one, says it does not see price as one of the keys to fighting new competition. Company spokesman Dan Wilinsky said that Sprint recently introduced a promotional offer that will last until January, but added that such promotions were not unusual in the highly competitive market.

“It has always been a very red-hot, competitive industry when it comes to price,” said Wilinsky, who insisted Sprint is focused mainly on improving customer service, network coverage and product innovation for the challenges of number portability.

Industry analyst Jeff Kagan believes service providers will try to avoid price wars at all costs and focus instead on creating clever service combinations or changing the sometimes rigid terms and conditions of customer plans.

But if companies begin to lose customers, the analyst predicted they could use maneuvers to lure rivals’ customers such as enticing them to break their contracts by offering to cover the fees charged by their existing carrier.

“It will start out as a gentleman’s sport like tennis or croquet. Then it’s going to quickly degenerate into wrestling or the Jerry Springer show,” Kagan said.

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