As wireless price war continues, carriers warn of lower profits

Verizon Wireless once promised customers an unrivaled network with clear calls and fast downloads in exchange for expensive cellphone service.

But no longer. With network improvements industrywide, a price war is breaking out.

Verizon Wireless and AT&T Inc. warned separately last week that their fourth-quarter profits probably would take a hit because they had to keep up with discount pricing in an increasingly competitive market in the last year.

For the first time in recent years, industry analysts said, many customers have strong options. Verizon Wireless, the nation's largest carrier by customers, is feeling the heat because of revamped networks at Sprint Corp. and AT&T Inc. and an expanding list of unlimited packages at T-Mobile.

Though customers are still coming through Verizon's doors at a good pace, they're paying less because of such promotional offers as a $150 credit for every smartphone line switched to Verizon. It's a dynamic that "will put short-term pressure" on profit margins and earnings per share, Verizon said.

"The question now is, 'Is Verizon going to risk losing business or keep following the crowd?' " said telecommunications industry analyst Jeff Kagan. "We're watching the wireless industry transform itself because No. 1 right now is customers want to pay less for service."

The shift began about 20 months ago when T-Mobile began discarding two-year contracts, eliminating the subsidies of several hundred dollars for new phones and offering customers the ability to pay for devices in monthly installments.

On Tuesday, T-Mobile said it would reduce the price of a two-line plan with unlimited calling, texting and data to $100, from $140. Each additional line costs $40, meaning a family of four would save 50 percent compared with a comparable Verizon plan, according to T-Mobile.

The company also restored a previously offered deal of $100 for four lines with 10 gigabytes of data a month and unlimited calling and texting.

T-Mobile's so-called uncarrier effort has pushed it close to overtaking Sprint as the nation's third-biggest cellular service provider. Even though T-Mobile's service might be spotty in some areas, boisterous Chief Executive John Legere has won the marketing and pricing games, analyst Kagan said.

Both AT&T and Sprint have rolled out their own offers this year to keep pace.

AT&T CFO John Stephens warned Tuesday that AT&T would see an uptick in the percentage of customers leaving its network this quarter. Between the customer losses and the promotions to new ones, margins will be down, he said.

"In all this noise, in all these promotional offers and all this stuff going on, we're having one of our best years for churn," Stephens said at a UBS-hosted conference.

Customers are seeing through all the headlines and finding unacceptable details in the promotions, Stephens said. Having a broad and fast network coverage will be the ultimate thing that wins over customers, he said.

Verizon social media workers are making similar pleas. They've jumped into ­Twitter conversations to hold on to customers who post online about their desire to switch to deals with other carriers.

Sprint regional Vice President Kevin Kunkel said his company is counting on a combination of an improved network, especially in Southern California, and good pricing to attract customers. Last weekend, Sprint began offering to cut service charges in half for customers switching from AT&T and Verizon.

"We wanted to rumble with the big guys," Kunkel said. "It's the boldest statement we've made that Sprint is the best place to be in this super-competitive marketplace."

"That makes my head spin, and it's exactly the kind of B.S. we're on a mission to end," Legere said.

Meanwhile, Sprint said it could offer 20 gigabytes, or double T-Mobile's new deal, for $100 on a four-line plan.

Analysts worried that the escalating price competition would hurt customers in the long run if it limits the investment that service providers can inject into network upgrades. The providers said that shouldn't be a problem for now, though costs for new signal space are exceeding expectations.

At the end of June, Verizon Wireless controlled 34.4 percent of the U.S. wireless market, followed by AT&T with 32.6 percent, Sprint with 14.7 percent and T-Mobile with 14.2 percent, according to equity research firm Oppenheimer & Co.