After AT&T price cuts, all eyes on Verizon

(Reuters) AT&T Inc’s plan to cut prices on its large shared data plans could prompt other U.S. carriers, particularly larger rival Verizon Wireless, to offer new discounts, analysts said.

The No. 2 U.S. mobile services provider said on Saturday it would slash the monthly fee for its 10 gigabytes per month data share plan aimed at families to $15 (£9.17) per phone from $40 per phone.

Including other charges, this would mean that a family of four would pay $160 per month or $100 less than Verizon Wireless or $80 less than Sprint Corp and $20 less than T-Mobile US for a comparable service, according to AT&T.

AT&T’s move follows recent price adjustments at the top U.S. wireless providers as they attempt to sustain growth in a mature market built on stealing growth from competitors.

“It is too soon to see if others react. With these plans AT&T is still at a premium to Sprint and T-Mobile US, but a clear discount to Verizon,” Wells Fargo Securities analyst Jennifer Fritzsche wrote in a note.

“(Verizon) will be the one to watch, in our view as they have been on record saying it would react to price moves if they felt the need.”

AT&T’s shares were down 2 percent at $33.32 in premarket trading on Monday, while Verizon’s shares were down 1.5 percent at $47.25.

Analysts have said a price war could dent the industry’s profits but the new plans might prompt higher data use by consumers.

“While (AT&Ts price cut) will likely have an impact on service revenue from some of the higher data users, this new pricing approach may also have some positives which should bode well for longer-term margin trends,” Wells Fargo Securities analyst Jennifer Fritzsche wrote in a note.

Jackdaw Research analyst Jan Dawson said the best way for AT&T to grow revenues was to increase the amount of data people include in their plans.

“The strategy is important as the market becomes saturated and there are fewer new customers to go around,” he said.

AT&T has been fiercely competing with smaller rival T-Mobile U.S. After T-Mobile spent several quarters directly marketing to AT&T customers, AT&T recently offered to pay T-Mobile customers to switch to its service.

T-Mobile’s announcement last month that it would pay up to $650 for early termination for customers switching from AT&T, Sprint or Verizon “may have pushed AT&T too hard”, making it fight back, J.P. Morgan Securities analyst Philip Cusick said.

AT&T’s new pricing plan also targets Verizon’s “prized” family plan customers, Jefferies & Co analyst Mike McCormack said.

McCormack said it was possible, but unlikely that Verizon would respond with service price discounts.

“The back and forth in price cuts is a negative for the entire wireless industry,” J.P. Morgan’s Cusick said.

(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Saumyadeb Chakrabarty)

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