By Ritsuko Ando

NEW YORK (Reuters) - Virgin Mobile USA on Tuesday unveiled an unlimited calling plan for $79.99 a month that undercuts similar offerings from larger rivals like AT&T by $20.



But Virgin Mobile shares fell 15 percent after Pali Research downgraded the stock to "sell" from "neutral," saying the new plan underscored a continued fall in rates amid an increasingly saturated market.

Pali analyst Walter Piecyk forecast Virgin Mobile's average revenue per user (ARPU) would keep falling throughout the year as consumers feel the pinch from rising fuel and food prices.

"Virgin's announcement of an unlimited rate plan today underscores our belief that rates will continue to fall in the United States, which is over 85 percent penetrated," he wrote in a research note.

Virgin Mobile, which focuses on selling prepaid phone cards rather than post-paid subscription services, said the "Totally Unlimited" plan will be offered starting July 1 and can be paid for with cash or by credit card.

For an additional $10.00 per month, customers can get unlimited texting and messaging service, said the company, which is partly owned by Richard Branson's Virgin Group and Sprint Nextel Corp .

"We do not believe its new rate plans will help ARPU because we do not believe they are relevant to its addressable market," Piecyk said, adding that many Virgin Mobile customers choose the company for its low-cost pre-paid minutes.

He also said he did not believe SK Telecom would buy Virgin Mobile, as some investors have speculated in recent weeks.

Virgin Mobile's announcement on Tuesday was the latest in a string of similar deals U.S. phone companies have launched to woo consumers in a weak economy.

Verizon Wireless, a unit of Verizon Communications Inc and Vodafone Group Plc , and AT&T unveiled $99.99-a-month unlimited calling plans in February, triggering concerns about a price war. Deutsche Telekom AG's T-Mobile USA went a step further by including text messaging for that same price.

Virgin Mobile's prepaid phone plans do not usually require rigorous credit checks or long-term commitments like postpaid services. Prepaid services tend to be cheaper, but their customers are generally less loyal.

Shares of Virgin Mobile fell 35 cents to $3.10 in afternoon trade on the New York Stock Exchange, while AT&T shares rose 10 cents to $34.48 and Verizon shares were down 38 cents to $35.53.

(Reporting by Ritsuko Ando; Editing by Steve Orlofsky and John Wallace)

© Copyright 2008 Reuters.
Photo:
Virgin Group Chairman Richard Branson poses with a mobile phone during the launch of Virgin Mobile services in Mumbai March 2, 2008. REUTERS/Punit Paranjpe