Concerns Over Price War Sink Telecoms; T, VZ at New Lows

The telecommunication services industry is having a difficult day on Wall Street today as investors are showing concern that the major U.S. telecom companies could soon find themselves in a dreaded pricing war. The speculation began after the two largest U.S. telecom companies, AT&T (NYSE: T) and Verizon (NYSE: VZ) announced they would offer flat-rate, unlimited usage plans in an attempt to maintain subscribers. Just hours after the two announced their respective plans, the U.S.' fourth largest carrier of wireless services, T-Mobile (through Deustche Telekom (NYSE: DT)), announced a similar flat-rate, unlimited plan. Adding to the price war speculation even more, AT&T, Verizon and T-Mobile are all pricing their plans at $99 a month.

To top it off, the relatively simultaneous announcements by AT&T, Verizon and T-Mobile leaves room for the third largest U.S. provider, Sprint Nextel (NYSE: S) to possibly announce a flat-rate plan that is cheaper than these competing providers. Considering Sprint's troubles in retaining subscribers over the last several quarters, investors are speculating that Sprint could offer an unlimited usage plan for as low as $60. All of these factors certainly suggest that a price war could break out and, unfortunately, and as the old Wall Street phrase goes, "no one wins in a price war."

Responding to market concerns, analysts across Wall Street have been commenting on possible outcomes of a telecom price war. Credit Suisse cut its investment rating on the entire telecom services sector from Overweight to Market Weight, while at the same time downgrading both AT&T and Verizon from Outperform to Neutral. UBS lowered estimates on several telecom companies, also lowering its price targets on AT&T and Verizon from $49 to $41 and $51 to $41, respectively.

Shares of AT&T and Verizon have both hit new 52-week lows on the news today and are certainly pulling down the entire communications services industry. Shares of AT&T fell as low as $32.95 in today's trading session, but have since bounced of their lows, recovering with the broader markets. Verizon marked a new 52-week low at $33.30 and is also regaining losses and has almost moved back up to fair value. At the lows, shares of AT&T were down more than 8% while shares of Verizon were down about 5.7%.

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