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Verizon’s Unlimited Plan is Grabbing Customers From Sprint

Sprint got a big boost in subscribers by joining the wireless industry’s shift to unlimited data plans last summer. But the company’s business has taken a hit after Verizon recently decided to follow suit with a similar plan.

Customer defection rates, or what the industry calls churn, is higher than expected at Sprint, chief financial officer Tarek Robbiati said on Tuesday at a Deutsche Bank investor conference.

“The rise in competitive intensity has probably triggered a little bit more churn than we thought,” he said. “We see churn to be relatively stable for the quarter. We had foreshadowed before that churn would be coming down over the quarter.”

Robbiati’s remarks, which also included a comment that unlimited pricing was too low and could hurt profit margins, sent Sprint’s stock price into a tailspin. Its shares dropped as much as 5% in afternoon trading to a low of $8.35.

Last quarter, net churn among regular monthly customers was 1.67%, Sprint reported, a bit higher than the 1.62% rate from the same period a year earlier. On a call with analysts, Sprint CEO Marcelo Claure said he expected churn would be lower in the upcoming quarter. But he apparently had not anticipated that Verizon would jump in with its own unlimited plan, as it did on February 12.

“We were surprised that Verizon launched unlimited offers,” the Sprint CFO Robbiati admitted at the conference

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T-Mobile (TMUS) moved first to unveil a new, lower cost unlimited data plan in August, though Sprint (S) officials maintained that they had been working on the idea for months and were beaten to implementing it at the last minute. AT&T (T) already an unlimited plan, though it was expensive and limited to its pay TV subscribers. At the time, Verizon (VZ) hadn’t offered an unlimited plan for five years, and then-CFO Fran Shammo loudly and frequently denounced the strategy as un-economic and unnecessary.

Then, over the past few months, Shammo retired and head of wireless operations David Small was replaced by Ronan Dunne, former CEO of British wireless carrier O2, as president of wireless at Verizon. Now it seems the company’s entire strategy is being replaced as well. Early results show significant interest in the new unlimited plan, Verizon executive vice president John Stratton said on Monday, also speaking at the Deutsche Bank conference.

For more on Verizon’s unlimited plan, watch:

Just before Verizon’s surprise unlimited announcement, Sprint had slashed prices on its unlimited offer to levels that stunned analysts. Originally, the plan cost $60 for one line up to $160 for four lines. But lately, Sprint has been offering two to five lines for only $90 per month maximum for one year. Other carriers charge from $180 to $200 for five lines. All of the plans can slow the rate of downloads if customers use large amounts of data in a single month.

Almost as if some other carrier had been the one slashing prices, Sprint’s Robbiati criticized the pricing of unlimited plans and predicted it would not last.

“It has to be said, in the longer run, is unlimited a sustainable proposition? Probably not,” he said. Prices will probably rise, but “if this doesn’t happen, then there is erosion of returns in the industry, something that is probably over the long run not sustainable,” he added.