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Wireless price war's good for consumers, but challenges carriers

Matt Hamblen | Oct. 27, 2014
Profits are in doubt at big carriers, posing concerns about long-term network, spectrum investments.

smartphone users
The price war among wireless carriers is a boon for consumers and a long-term problem for carriers. Credit: http://www.flickr.com/photos/garryknight/

More than any time in the past decade, wireless customers are reaping the benefits of a carrier price war over smartphones and tablets, as well as monthly data service contracts.

The news isn't as good for the major wireless carriers, based on earnings reports earlier this week from Verizon Wireless and AT&T. Sprint is expected to be the hardest hit when it reports earnings Nov. 3.

While it is just a single quarter, Verizon slightly missed profit estimates in its latest report on Tuesday. Its earnings were 89 cents a share, a penny below the average analyst estimates of 90 cents compiled by Bloomberg, even as sales climbed 4.3% to $31.6 billion.

AT&T on Thursday reported quarterly earnings of 63 cents a share, just below the 64-cent analysts estimate, according to Bloomberg. Revenues were $32.96 billion. More significantly, AT&T said its revenue growth would range from 3% to 4% for 2014, down from a previous projection of 5%.

Long term, customers will see the impact of lowered profits resulting in lower investment in wireless network growth and innovation in new technology, analysts said.

Earnings reports for the fourth quarter, which come out in January, will give a better picture, but analysts said they definitely see the impact on AT&T and Verizon profits of an ongoing price war kicked off by T-Mobile US in 2013.

"Ultimately, when there's a slowdown in carrier profitability, it hurts the ability of the companies to invest," said Roger Entner, founder and lead analyst at Recon Analytics. "In the wireless industry, it's particularly impactful because as wireless usage flows up, that increases the need for more network capacity, and more capacity only arrives when companies are investing in more cell sites, new technology and the like. That's the danger of a price war. It's a longer-term effect, not a short-term effect."

For now, however, customers who aren't wireless investors are texting smiley faces all the way to the bank.

The main instigator of all the price cuts has been the nation's fourth-largest carrier by subscribers, T-Mobile, which introduced new deals for customers seven times after first dubbing itself the "Un-Carrier" in March 2013. T-Mobile, mostly owned by Deutsch-Telekom, grabbed the attention of its bigger rivals by dropping contracts, subsidized phones, overage fees for data and early termination fees.

"The profit warnings we hear about AT&T and others are clearly tied to the impact T-Mobile has had," Entner said.

T-Mobile reported 50.5 million subscribers in July and is widely expected to gain enough subscribers to bump Sprint out of third place after its next earnings report on Tuesday. Sprint with follow with its earnings report the following week.

 

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