Phone fight: T-Mobile ups ante in unlimited calling plan battle

February 19, 2008: 6:00 AM ET

By Michal Lev-Ram

Just hours after Verizon Wireless announced Tuesday that it was launching a $100 unlimited calling plan, rival AT&T matched the offer with its own $100 plan  Not to be outdone, T-Mobile hopped on the bandwagon late Tuesday, saying it too would launch $100 unlimited calling plan and kick in unlimited text messaging and other data services for free.

The announcements sent shares of both Verizon (VZ) and AT&T (T) plummeting about 6% in late trading. But shares of all three carriers, including T-Mobile's parent company, Deutsche Telekom (DT), were up slightly after the bell.

In a written statement, T-Mobile said its new rate plan is an effort to "help our customers stick together with those who matter most, and to provide the utmost value to our customers."

AT&T spokesperson Mark Siegel said his company wants "to be able to rapidly respond to our customers' needs and to be able to rapidly respond in a very, very competitive marketplace."

Verizon's new plan launches today, while AT&T and T-Mobile's will be available to customers late this week.

The three mobile operators are fierce competitors. While Verizon and AT&T are both are considered to be the number one U.S. carrier -- depending on the definition, as Verizon leads in revenue while AT&T has more subscribers -- T-Mobile has built a reputation as the most "consumer-friendly" of the major carriers and is especially popular among young customers.

The unlimited plans are a first among major U.S. wireless operators, as consumers typically pick rate plans based on how many minutes they think they'll use per month and are stuck with paying steep fees (as much as 45 cents per minute) if they go over their allotted airtime.

But Verizon, AT&T and T-Mobile aren't just competing with each other, they're also attempting to take business from Internet phone calling providers like Comcast (CMCSA) and Vonage (VG). Those companies typically offer unlimited calls for as low as $25 per month.

While Voice over Internet Protocol, or VoIP, services tend to be inexpensive (some are even free), they are usually confined to home phones or personal computers. Verizon says it is counting on its service to appeal to the growing number of consumers who rely exclusively on their mobile phone to make calls. According to CTIA, a wireless trade association, 12.8% of U.S. households were "wireless-only" in 2007, up from 7.7% in 2006.

Verizon's chief marketing officer Mike Lanman says he expects the new service to be attractive to 13 to 15% of wireless customers.

Currently, Verizon offers basic wireless calling plans that cost anywhere from $40 for 450 minutes to $200 for 6,000 minutes. The company won't disclose how many of its customers have signed up for its higher-priced plans. AT&T charges similar rates for its basic, individual calling plans. T-Mobile tends to offer slightly cheaper plans, such as a $30 per month service that gives subscribers 300 minutes of airtime.

But $100 a month — payable to either of the three carriers -- is a lot of money to shell out for monthly cell phone service, especially since it doesn't include the price of a data plan. Only T-Mobile's plan includes text and picture messaging, but even that rate doesn't include other data services like Web browsing.

Of the four major U.S. carriers, Sprint (S) is the only who hasn't yet jumped on the unlimited call plan bandwagon. Its shares were down more than 3% during regular trading on Tuesday.

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About This Author
Michal Lev-Ram
Michal Lev-Ram
Writer, Fortune

Based in Silicon Valley, Michal Lev-Ram covers enterprise and mobile technologies for FORTUNE. Prior to joining FORTUNE, she wrote for CNNMoney, Fast Company, Popular Science and other business and technology publications. She was also a staff writer at Business 2.0 and holds a B.A. in journalism from San Francisco State University.

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