Does Verizon Have to Join the T-Mobile, AT&T Price War?

Telecom & Wireless

Published: February 3, 2014 1:11 pm

Last Updated: April 27, 2020 8:25 pm

Source: Thinkstock

T-Mobile US Inc. (NYSE: TMUS) spent some serious money on Super Bowl ads yesterday, boasting about their no-contract deals and offers of a buyout from a customer’s current mobile wireless carrier. In a rather poorly timed effort to steal some of T-Mobile’s thunder, AT&T Inc. (NYSE: T) on Friday announced a new family plan that offers four phone lines and 10 GB of shared data for $160 a month.

So far, though, the country’s largest wireless carrier by subscriber count, Verizon Wireless, has stayed out of the price war between T-Mobile and AT&T. Verizon Communications Inc. (NYSE: VZ) is busy buying out Vodafone plc’s (NASDAQ: VOD) 45% stake in Verizon Wireless for around $130 billion.

Verizon is expected to pay for Vodafone’s stake with nearly $59 billion in cash and $60.2 billion in Verizon stock. Following the completion of the transaction Verizon’s debt load is expected to be around $116 billion. The last thing Verizon needs is to get into a price war where it has to cut prices either for phones or for its own services.

If Verizon does not cut prices to match its competitors, can it still expect to be the leader in subscriber count? The company is banking on its large 4G LTE network and generally better service ratings to help it keep its customer base. In virtually every independent customer survey AT&T ranks lowest of the major U.S. carriers. Verizon has to hold the line on prices as long as it can.

And while T-Mobile can’t afford to fight with AT&T in a war of attrition, if the smaller company can steal some of the larger one’s customers perhaps it can demonstrate to Softbank that a merger with Sprint Corp. (NYSE: S) will put that merged company in a position to overtake AT&T as number 2 and threaten Verizon’s top ranking. By that time Verizon will have had to do something.

Verizon’s shares are down about 2.7% today at $46.71 in a 52-week range of $44.02 to $54.31. Investors are probably expecting the company to join the price war, cutting its own margins (throat?) in the process.

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