Shares of AT&T Inc. and Verizon Communications Inc. fell sharply Monday after a brokerage cut its rating on both phone companies, saying the recession and a saturated U.S. wireless market are likely to retard growth in 2009.

AT&T lost 4% in value and Verizon dropped a stiffer 5%.

Craig Moffett, the influential analyst at Bernstein Research, cut his rating on Verizon to underperform from market perform, while he downgraded AT&T to market perform from outperform.
Although Moffett acknowledged phone companies are "somewhat more recession-resistant than most business," he said they are more exposed to slower growth than their current stock valuations suggest.

On the upside, discount mobile phone company Leap Wireless International Inc.gained 6% on an upgrade from the brokerage Wachovia. The firm believes Leap could benefit as consumers seek out cheaper wireless services to save money in the recession.

In the equipment group, most stocks actually rose, though gains were small. Alcatel-Lucent was the top advancer, up 2.2%.

Decliners included Motorola Inc., off 3% and Qualcomm Inc., which slid 1.5%.

Looking at major indexes, the Dow Jones Wilshire Fixed Line Telecommunications Index sank 4.9% to 962 points, largely because of the declines in AT&T and Verizon.

Over the past year, the index has ranged from a high of 1,466 points to a low of 732 points.

The Dow Jones Wilshire Telecommunications Equipment Index rose a scant 0.1% to 3,994 points, owing to a 1% increase in Cisco Systems Inc., by far the largest stock in the group.

Over the past year, that index has ranged from a high of 6,791 points to a low of 3,092 points. 

Source:MarketWatch