AT&T, Verizon May Fall Further as Flat Rates Portend Price War

(Bloomberg) -- AT&T Inc. and Verizon Communications Inc. declined for the second straight day in New York trading after adopting flat-rate mobile calling plans that could be the opening salvos in a price war.

AT&T and Verizon Wireless, the two top U.S. wireless carriers, announced plans yesterday to sell unlimited calls for a flat fee of $99.99 a month. Credit Suisse cut its ratings on shares of AT&T and Verizon Communications, co-owner of Verizon Wireless. Robert W. Baird & Co. lowered its AT&T rating to match its neutral stance on Verizon Communications.

The unlimited plans, including another announced by T-Mobile USA Inc., pose a competitive challenge as U.S. mobile carriers already struggle to reach the remaining fifth of Americans that don't yet have a wireless phone. While analysts estimated the new rates may not hurt sales, they worried about future price cuts.

``There's no going back,'' said Credit Suisse's Christopher Larsen, who cut AT&T and Verizon shares to a neutral rating from the equivalent of a buy recommendation. ``It's extremely unlikely prices go up from $99, so now you've created a ceiling for what unlimited pricing will be.''

AT&T, based in San Antonio, fell $2.41, or 6.7 percent, to $33.48 at 10:13 a.m. in New York Stock Exchange composite trading, the biggest drop in five years. The shares lost 5.3 percent yesterday. New York-based Verizon declined $1.60, or 4.5 percent, to $33.74, extending yesterday's 6.6 percent loss.

While the pricing plans may only affect the less than 5 percent of subscribers who pay more than $100 a month, they will convince more customers to replace their home phones with mobile handsets, said Larsen, who is based in New York.

Upper Tier

The plans announced yesterday aim at the upper tier of customers who spend about twice what an average mobile-phone user paid last quarter, as reported by AT&T and Verizon.

The new rate plans reminded Stanford Group Co.'s Michael Nelson of the day the old AT&T Wireless began selling local and long-distance service for one price.

``It turned the wireless industry upside down,'' the New York-based analyst said in an interview yesterday. ``It caused all the carriers to come up with completely new calling plans, to really revisit their entire business models.''

The flat-rate movement ``raises the risk profile for a pricing war across the entire industry,'' said Nelson.

The former AT&T Wireless, which is now part of AT&T's mobile-phone unit, started its Digital One Rate plan in 1998, erasing the distinction between local and long-distance calls on mobile phones, keeping rates flat regardless of the caller's location.

 

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U.S. Economy: Housing Slump Fails to Quell Inflation

(Bloomberg) -- The two-year housing slump pushing the U.S. economy toward a recession hasn't alleviated inflation pressures, reports today showed.

Consumer prices rose 0.4 percent from December, with costs excluding food and energy climbing 0.3 percent, the most since June 2006, the Labor Department said. Builders started work on 1.012 million homes at an annual rate in January, close to a 16- year low, the Commerce Department reported in Washington.

The figures mean Federal Reserve Chairman Ben S. Bernanke will need to consider raising interest rates as soon as the economy stabilizes. Bernanke, who last week said the Fed is prepared to keep lowering interest rates, warned that faster inflation would ``greatly complicate'' the central bank's job.

``What this means is that they don't have as much comfort to play with rates,'' Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said on Bloomberg Television, referring to Fed officials. ``Once the U.S. economy looks like it's started to stabilize, they're going to have to jump right back in to that, raising rates back up to neutral.''

Treasury securities slumped after the consumer price report, while recouping most of the losses later. Ten-year note yields increased to 3.93 percent at 9:54 a.m. in New York from 3.90 percent late yesterday. The Standard & Poor's 500 stock index lost 0.8 percent, to 1,337.97.

Lowest Since 1991

Building permits, an indication of future construction, fell 3 percent to a 1.048 million rate, the lowest level since November 1991, today's Commerce report showed.

Housing starts were projected to rise to a 1.01 million pace from an originally reported 1.006 million rate in December, according to the median forecast in a Bloomberg survey of 72 economists. Permits were forecast to drop to a 1.05 million rate, from 1.068 million in December.

``We don't think housing has hit bottom yet,'' said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto. ``Until we get some stabilization in sales or even a mild improvement, it's likely that construction will continue to weaken.''

A jump in food and energy costs, rents and clothing prices led the consumer-price index higher last month. Economists had forecast a 0.3 percent increase, with the so-called core rate gaining 0.2 percent, Bloomberg surveys showed.

Today's price report ``certainly showed a broad-based intensification of inflation pressures,'' said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. While the Fed currently ``is looking at growth,'' inflation ``will come back on the radar screen'' when economic data improve, he said.

Food Costs

Food prices, which account for about one-seventh of the CPI, rose 0.7 percent, matching the biggest gain since May 2004, after a 0.1 percent increase in January. Energy prices last month increased 0.7 percent, after rising 1.7 percent the previous month.

``Even if energy prices remain flat, the continued rise in retail food prices will damp consumer spending growth,'' JPMorgan Chase & Co. economists wrote in a note to clients last week.

Fuel costs were up 4.5 percent. Apparel prices rose 0.4 percent after a 0.1 percent increase in December.

The consumer price index is the government's broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices that consumers pay for services ranging from medical visits to airline fares and movie tickets.

 

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