Tuesday, January 19, 2010

UBS Investment Research Telecommunications

More pressure on high-end wireless pricing

�� Verizon simplifies wireless pricing; AT&T matches new unlimited rates
On Friday, Verizon lowered unlimited wireless rates by 30% to $69.99/mo; added
a minimum data fee of $9.99/mo (for up to 25MB) for 3G multimedia phones; and
cut data overage charges to $0.20/MB from $0.50/MB. AT&T matched the
$69.99/mo rate for unlimited calling; AT&T customers with QWERTY devices
will pay $89.99/mo for unlimited talk and text, while smartphone subs (incl.
iPhone users) will pay $99.99/mo for unlimited voice and data.

�� New plans a slight positive to gross add share and churn
With the price cut on unlimited voice, rates at VZW and T are closer to those at
Sprint and T-Mo (S at $59.99/mo for unlimited mob-to-mob plus 900
wireline/roaming min and T-Mo at $59.99/mo for unlimited voice w/contract). VZ
management expects this move to help it boost gross add share.

�� Minimal impact on ARPU with potential upside from data
We estimate less than 2% of Verizon’s postpaid users pay more than $70/mo for
voice (vs. est. 4% for AT&T), limiting the impact on ARPU. Roughly 10% of the
VZW base pays $60/mo for 900 mins (vs. est. mid-teens for AT&T) and could buy
up. With the forced data plans, we expect some subscribers will shift to a simple
feature phone, while the higher data mix eventually offsets some voice pressure.

�� Pricing changes relatively modest as carriers fight for remaining net adds
Although these plans do not appear overly aggressive or disruptive, they come on
the heels of price cuts from MetroPCS and Sprint’s expansion of unlimited Boost
to the CDMA network, which may force other players to act.


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