S SentinelOne Inc

By Thomas Gryta 

The wireless price war may have reached detente.

After years of slashing prices, offering stunning promotions and undercutting each other to grab new subscribers in a market that has reached near saturation, the four largest U.S. wireless carriers have reported second-quarter results that suggest prices have stabilized. Some operators are even talking about how price rises could be in the future.

Sprint Corp., which has been offering half-off promotions, said the time might be coming to stop discounting and start increasing rates. Verizon Communications Inc. already raised prices on its service plans, while T-Mobile US Inc., which stoked the competitive fire of recent years, raised prices last year, and now says it is open to making a similar move going forward. AT&T Inc. hasn't changed its pricing in almost a year.

"The price war has played itself out," said Angelo Zino, an equity analyst with S&P Global, noting that switching customers away from smartphone subsidies has reset the fee structure. "We saw an interesting couple of years."

For all carriers, the average revenue per user, a metric used to calculate how much the carriers earn from their subscribers, has plateaued after dropping steadily since late 2013, according to data from UBS Group AG. In the second quarter, the metric fell to $50.20, down from $60.70 in the third quarter of 2013, but only down slightly from $50.40 in the first quarter, according to UBS data.

The stabilization of pricing comes at a time when carriers are facing big investments and slowing revenue growth. The federal government is running a large auction of wireless airwaves, which is expected to draw billions of dollars from bidders. Sprint is investing heavily to upgrade its network.

Other factors have helped drive the user revenue figure lower. As carriers have moved away from subsidy plans, their service revenue has dropped because most consumers now finance their devices with separate monthly payments that aren't counted as part of the annual per user revenue metric.

But even adjusted for that change, analyst Craig Moffett with MoffettNathanson estimates that prices were falling 5% a year just a year ago, but now that decline has significantly slowed.

"They may have even fully stabilized at this point" on a quarter-to-quarter basis, Mr. Moffett said. "We have been going through this gradual healing process for the market, where it is still highly competitive but it is seemingly more rational."

Earlier this week, Sprint reported stronger than expected customer additions for the latest quarter, and noted that it would be soon raising prices after a prolonged period of deep discounting.

The carrier, which has fallen to fourth-largest in the U.S., needed to use lower rates to attract customers until its network improved, CEO Marcelo Claure said Monday. "We're committed to increasing the average billing per user," Mr. Claure said on a conference call.

Verizon recently raised its rates by $5 or $10 a month, but increased the size of its data buckets to offset the higher bills. Last fall, T-Mobile quietly raised prices on many of its plans and told Wall Street it was nudging customers away from unlimited data plans. T-Mobile Chief Executive John Legere said he doesn't feel pressure to raise prices.

"We've got opportunities when it is seen as value accretive to our customers to expand price, but the price conversation to us is not a mandatory lever," Mr. Legere said in an interview. Like Verizon, T-Mobile's last price rise came with larger data allotments for customers.

A Verizon spokesman said its price move wasn't an increase, but rather the higher rates provide "better value" for customers.

Customers remain price sensitive, S&P's Mr. Zino said, and carriers aren't yet likely to run the risk of raising monthly fees. Analysts also caution that the coming new iPhone this fall could spark a fresh round of promotions because upgrade cycles are one of the few moments when consumers will change carriers.

"The obvious question is whether this endures," Mr. Moffett said, "or whether we take another leg down when the iPhone 7 arrives."

Write to Thomas Gryta at thomas.gryta@wsj.com

(END) Dow Jones Newswires

July 31, 2016 05:44 ET (09:44 GMT)

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