There hasn't been this much action in the mobile phone space since Gordon Gekko plotted his moves on a cell phone the size of a brick.
The latest disruptive news comes from Walmart (WMT), of all places, which has announced plans to offer low-cost mobile service. Starting this Sunday, the big-box retailer is launching a pre-paid wireless service called "Straight Talk," which offers a $30 or $45 prepaid monthly plan available at more than 3,200 Walmart stores nationwide. The plans offer cell phone service at a major discount to existing mobile calling packages. To wit: the $30 monthly plan includes 1,000 minutes, 1,000 texts, 30MB of mobile Web access, and nationwide coverage. The $45 monthly plan includes unlimited minutes, texts, mobile Web access, and nationwide coverage.
"By switching to the $30 Straight Talk plan . . . the average 1,000 minutes-per-month consumer could save more than $500 per year and still be on a reliable nationwide network," Walmart said in a statement.
That sound you hear? Executives at T-Mobile and Sprint losing their lunch.
Walmart decided to launch the service after a pilot
program in 234 stores this summer generated what it called an "overwhelming" response from consumers. It's not hard to see why. In the midst of a steep recession, with cell phone bills continuing their relentless creep upward, consumers will feel a powerful urge to seek out low-cost alternatives. It's a good move by Walmart, which once again demonstrates its secret to success: Listen to customers and give them what they want.
"It has been very encouraging to see the excitement and response to the Straight Talk pilot in 234 stores that began last summer at Walmart," Greg Hall, vice president of Walmart's Media Services said in a statement. "In light of the savings customers continue to need, we have worked very quickly to extend this offering to all of our Walmart customers nationwide, and just before the holidays."
Walmart is developing the service with TracFone Wireless, a U.S. subsidiary of billionaire Carlos Slim's Mexican cellphone giant America Movil, which claims more "no-contract" cell phone customers than any other carrier in the U.S. The service will run on the network of Verizon Wireless, the U.S. mobile market leader. Verizon Wireless is a joint venture of Verizon Communications (VZ) and Vodafone Group Plc.
Industry analysts said Walmart's move, along with other low-cost market entrants, could prompt a price war in the mobile market. "It raises the risk of an industry-wide pricing war," Soleil/Nelson Alpha Research analyst Michael Nelson told Reuters. "This clearly represents increased competition for the entire wireless sector and in particular for the unlimited pay-in-advance segment," Nelson said, referring to the new Walmart offering.
Both Verizon and AT&T, the No. 2 U.S. mobile service, have maintained that they have no need to compete for what the conventional wisdom holds is the dregs of the market: low-cost, prepaid phones. "Now with the nationwide expansion of the service through an extremely powerful distribution channel of Walmart, it certainly raises the risk profile of the unlimited pay-in-advance segment," Nelson said.
Smaller players like T-Mobile and Sprint have already joined the fray with offerings from MetroPCS and Boost Mobile. "The risk for Verizon and AT&T is what kind of aggressive response we're going to see from T-Mobile and will that have a ripple effect throughout the industry," Nelson said, adding that there is a risk that the new service could cannibalize some of Verizon Wireless's higher paying customers.
"What's different this time is that total industry subscriber growth is significantly decelerating so incremental opportunities are much more limited," the analyst said.
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