Sprint takes T-Mobile pricing head on

Yahoo Finance

With a Sprint (S) to the bottom in mobile-service prices, we now have exactly the wireless phone industry the government wants – and the one investors have feared.

With a new CEO and a recent plan to merge with T-Mobile (TMUS) scuttled, Sprint is scrapping its “framily” plan in favor of a cheap, data-heavy $100-per-month offering for 20 gigabytes and up to 10 lines, while promising up to $350 to break a contract with a rival carrier.

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The company is trying to kick up a fuss with this renewed push for discount-hunting subscribers, and was predictably met with ridicule by T-Mobile’s self-styled maverick CEO John Legere, who insists that his company define wallet-pleasing, customer-friendly phone service.

Related: Sprint/T-Mobile deal setting off alarm bells in Washington

When Sprint and T-Mobile struck a merger deal, the idea was to combine the numbers three and four players in a mature, brutally tough market. Regulators made it quite clear that they prefer, for now, a four-way battle to keep downward pressure on prices for consumers. The only option for Sprint and T-Mobile is conjuring better deals for consumers in market-share trench warfare.

Sprint is majority-owned Japanese giant Softbank and T-Mobile is backed by Deustche Telecom – which makes this a nearly ideal setup for the American smartphone addict. These companies can fund network improvements and absorb operating losses while keeping monthly customer costs in check.

Related: Sprint pulls the plug on T-Mobile deal, names new CEO

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Investors hate this, of course, because it means lousy returns on capital for the lesser competitors and irrational competition for all of them.

At some point, this arrangement will likely break, and perhaps one of the smaller guys will grow weak enough to be rescued in a deal blessed by regulators, the way the long-distance phone industry was rolled up once its economics got bad enough.

We’re clearly not there yet, though, so be ready for lots more bluster from Sprint and T-Mobile CEOs and plenty of screeching commercials promising ever-better phone plans during every football game you watch this fall.

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