Lies, More Lies, and Verizon vs. AT&T

The following is a modified post from the Motley Fool editors' blog.

The wireless companies are bringing out their big guns this Holiday season. Unless you’ve been living in a cave or have filtered everything "non-Tiger" related out of your life, you’ve no doubt seen the salvos tossed between AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) Wireless.

A brief history of wireless time
Here's a brief rundown of how the cat-fight’s shaping up thus far:

It all started with Verizon's iDon't campaign. The ad promoted Verizon's new Droid smartphone from Motorola (NYSE: MOT  ) by comparing features the Droid had and Apple's (Nasdaq: AAPL  ) iPhone lacked. While most of the claims from the commercial were technically true, several were nit-picky differences that didn’t truly offer points of distinction between the Droid and iPhone.

After the iDon't campaign Verizon started running a series of commercials promoting their superior network. While the commercials were correct when comparing 3G networks, they ignored AT&T's wide ranging "2.75G"EDGE network. Essentially, while AT&T's EDGE network is slower than 3G networks, it's still largely serviceable (though not impressive) in providing data coverage.

AT&T felt as though Verizon was distorting their coverage area in the ads and filed suit. After a series of spitballs and hair pulling between the companies, AT&T dropped its suit and directly responded in its own series of ads.

The ads essentially amounted to Luke Wilson trying to charm the audience while promoting AT&T's superior features. These features being … basically a list of iPhone selling points that Verizon phones lacked. Of course, these claims were once again debatable. AT&T claimed only they could let you talk and surf the web. Funny thing is, I personally have Verizon's Droid and use it to talk and surf on a daily basis while connected to Wi-Fi networks. Again, a point that's technically correct, but not a huge point of differentiation.

A crowded marketplace
I know, more drama than an episode of Keeping Up With The Kardashians where Kim eats Chloe's last bagel (the nerve!).

But behind all this are some deep competitive dynamics that are shaking down the warm oligopoly that wireless providers have traditionally enjoyed. With a U.S. wireless penetration rate of over 90%, there are simply not a lot of new customers to bring in. 

Wireless companies are now being forced to fight among each other for the valuable postpaid customers who provide a constant stream of recurring revenue. Further, its these postpaid customers that typically sign up for additional services such as data and text messaging that allow wireless companies to increase their average revenue per user (ARPU).

So, it's only natural that Verizon would set its sights on its largest competitor, especially when it invested in building out a national network that is generally regarded as the best in the country. However, the fierceness of the squabbles is surprising and shows the added intensity wireless companies will use in courting customers during the coming years.

Don't forget the little guys!
Not to be left out of this discussion are Sprint (NYSE: S  ) and Deutsche Telekom (NYSE: DT  ) unit T-Mobile. Neither company has been able to gain much traction as of late, and both are looking for new means to attract customers. Among the four "Tier-1" carriers, T-Mobile has been mired in last place and struggled to roll out a competitive national data network. Meanwhile, Sprint has been slowly bleeding customers over the last couple years. 

As I mentioned earlier, the industry has generally maintained a comfortable business environment. Carriers locked customers into long contracts and generally avoided trying to compete directly on price. But desperate times call for desperate measures; with subscriber growth becoming increasingly difficult and fewer options on the table, T-Mobile recently unveiled a no strings attached plan that gave unlimited texting, talk, and data for only $80 a month.

Fool contributor Tim Beyers suggested T-Mobile's move was a powerful case for shorting telecoms. If the industry moves to a model where consumers are no longer locked into contracts, consumers will look for the handset most closely matching their specifications and then choose a carrier based on regional strength and price.

Bottom line
The bottom line in all this is that the next couple years are going to feature the wireless industry getting more aggressive, and that should be bad news for all companies involved, but probably good for consumers.

Worst of all, this could be a multi-front war for the wireless industry. Not only is the industry facing more intra-industry competition, but powerful software on smartphones threatens to disrupt its business model. Applications like Google (Nasdaq: GOOG  ) Voice threaten to circumvent added voice and texting charges. Consumers need only their data connection to make calls and send messages. While wireless companies should be able to maintain bundling packages, these kinds of applications could limit the amount of customers using margin-boosting plans that offer a higher number of voice minutes per month.

As far as the AT&T vs. Verizon spat, I think AT&T needs to re-tool a bit. Their advertising right now is predominantly focused on promoting features of the iPhone, but with the phone's exclusivity contract expiring next year, the company would be wise to not stake its brand around the iPhone. AT&T appears to have realized this point and backtracked a bit; it's now promoting the speed of their 3G network.

So grab some popcorn and sit back, the fireworks are just starting to fly. Have any thoughts on the wireless industry? Make sure to leave a comment below.

Eric Bleeker owns shares of no companies listed above. Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor selection. Sprint Nextel is a Motley Fool Inside Value pick. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy that ate, like, five dozen ketchup packets this morning and feels woozy. Yet it keeps chugging along -- true bravery.


Read/Post Comments (18) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 15, 2009, at 3:32 PM, fjose wrote:

    You must have a special phone then. there is no way you can surf and talk at the same time on CDMA.

    Now if you were wifi then

  • Report this Comment On December 15, 2009, at 3:51 PM, Fool wrote:

    If u think about it at has better phone an verizon has the coverage but if (is a 1 percent chance if da join they would dominate aginst sprint and t moblie

  • Report this Comment On December 15, 2009, at 3:51 PM, gslusher wrote:

    "AT&T claimed only they could let you talk and surf the web. Funny thing is, I personally have Verizon’s Droid and use it to talk and surf on a daily basis."

    Only not at the same time, unless you're using VOIP. The Verizon CDMA system does not support simultaneous data and voice.

  • Report this Comment On December 15, 2009, at 3:52 PM, gslusher wrote:

    "AT&T claimed only they could let you talk and surf the web. Funny thing is, I personally have Verizon’s Droid and use it to talk and surf on a daily basis."

    Only not at the same time. Verizon's CDMA network doesn't support simultaneous voice and data. That's one reason almost no one outside the US uses CDMA.

  • Report this Comment On December 15, 2009, at 3:59 PM, TMFRhino wrote:

    Valid point, I'll have the article changed to clarify that's only on a wifi connection.

    Best,

    Eric Bleeker (TMFRhino)

  • Report this Comment On December 15, 2009, at 4:05 PM, Fool wrote:

    Actually, Att's 3G technology allows for simultaneous voice and data usage, but Verizon's dies not. Thi is a fact, and something the writer of this article doesn't seem to understand!

  • Report this Comment On December 15, 2009, at 4:08 PM, Fool wrote:

    Uhmmmm. Verizon doesnt have simultaneous data and voice (at the same time), but AT&T does allow this. This was missed!

  • Report this Comment On December 15, 2009, at 4:21 PM, isaaccs wrote:

    The New York Times provided a fairly comprehensive assessment of technical underpinnings of the Verizon vs. AT&T network argument.

    Contrary to popular perception, AT&T's network outperforms Verizon's by almost every measurable objective criteria in almost every part of the country. Unfortunately, growth of iPhone users in major urban markets continues to surpass the network's ability. What we can take away from this is that, had Verizon brought the iphone to market, people would be even angrier at Verizon right now than they are at AT&T.

  • Report this Comment On December 15, 2009, at 4:26 PM, TMFRhino wrote:

    Isaacs,

    I'd be interested to read that, do you have a link handy? I find the whole debate on whether the iPhone has actually hurt AT&T to be pretty interesting. Although, on the margin, I'd disagree with those who say it wasn't worth the network headache.

    Best,

    Eric Bleeker (TMFRhino)

  • Report this Comment On December 15, 2009, at 4:51 PM, bd9439 wrote:
  • Report this Comment On December 15, 2009, at 4:53 PM, TMFRhino wrote:

    Thanks bd9439, very much appreciated.

  • Report this Comment On December 15, 2009, at 5:11 PM, Turfscape wrote:

    TMFRhino wrote:

    "I find the whole debate on whether the iPhone has actually hurt AT&T to be pretty interesting."

    This is something I was discussing over at my blog here:

    http://caps.fool.com/Blogs/ViewPost.aspx?bpid=307755&t=0...

    I believe that the iPhone actually kept AT&T from becoming completely irrelevant as a wireless provider. However, it's clear that their capabilities lag their demand. If AT&T doesn't put some major investment in place, they will be crushed by their own and Apple's success.

  • Report this Comment On December 15, 2009, at 10:58 PM, TMFRhino wrote:

    Turfscape,

    "But, I can't help but giggle just a bit at the thought of this application: "If you're somewhere where there is no service, use your AT&T phone to tell us!""

    Heh... Not a bad point there. But as you said, I'm glad AT&T is addressing some service problem head on. As I said above, I'd rather see AT&T work to repair their network image rather than basically tailor their brand image to "Hey, we have the iPhone!" since that might be a fleeting victory if the iPhone goes multi-carrier next year.

    Foolish best,

    Eric Bleeker (TMFRhino)

  • Report this Comment On December 16, 2009, at 12:12 AM, onemoof wrote:

    Sprint is currently the most beat up stock out there. Bargain seekers will jump towards pre-paid, and Sprint has lots of pre-paid brands such as Virgin Mobile and Boost Mobile that can draw in lots of customers. However, the real reason Sprint may be a solid future company is their ownership of part of the Internet backbone. I'm not sure how much profit comes from which segment, but I would definitely bet on future Internet traffic growth.

  • Report this Comment On December 16, 2009, at 11:18 AM, Aryabod wrote:

    Sprint currently has twice ATT's and 14 times T-Mobile's 3G coverage and they are the only carrier with a noteworthy 4G network. This makes them currently king of the hill when it comes to speed. ATT's fastest has now morphed into fastest 3G because there is no way their network is faster than Sprint's, especially when you compare their entire networks. Sprint's 3G/4G data cards put against ATT or Verizon wins hands down and I don't think there is a Fool out there that can challenge this.

    The second area that Sprint wins hands down is on their pricing. For under $70/m you can get Unlimited Everything Mobile or for $42/m a family of four can get the same plan.

    For the first time in years Sprint now has a line up of phones that are second to none: the HTC Hero or TourchPro, the Samsung Moment, the Palm Pre and Pixi and numerous Blackberries that include the Tour (their international phone) etc. Sprint also has numerous phones that are dual mode for those of us that need phones when traveling abroad.

    When it comes to growth in the Pre Paid arena Sprint once again beats their peers hands down, with the growth shown at Boost Mobile, they added more than 2.1 million subscibers in the first three quarters of this year and appear to be on the same glide path for the Q4 period. They also added another 5.3 million with their acquisition of VM.

    Now, lets get to the juicy part, the Growth areas of this industry. No one doubts that the future ARPU growth lies in data and not voice, albeit voice will always have its place. This once again is an area Sprint has plenty to leverage. Its Spectrum holding will become priceless as the future of growth in data becomes more apparent. It has a virtual monopoly of the 2.5Ghz spectrum.

    The Trailing Twelve Months (TTM) numbers are misleading in many ways, they do not always portend the future. Sprint no doubt had its problems merging with Nextel and their new mgmt has done well to accept this and take the necessary steps to turn the company around. First before they could make any major moves to put the company on an even keel they needed to shed many of their Legacy costs and doubt the Recession facilitated an opportunity to do this which included laying off 40+ % of their workforce with plenty of organic restructuring. To become more focussed they outsourced to Eriksson their network maintenance without giving up any ownership rights. They made major investments in their 4G network with Clearwire and made sure that before the end of Q4 they had a decent line up of phones, which is sure to get substantially better in 2010.

    The only area that I see the company needs to work on now is Marketing, especially in their stores. Their San Diego store on Broadway is replete with Zombies and I hope that is an exception to the norm.

    One thing we should all remember is that three years ago there was an iPhone that had no challenger and until six months ago nothing even came close to Knocking the iPhone off its feet, however that has changed and 2010 will manifest that the iPhone is no longer king.

    If Apple continues tethering itself to ATT it will surely lose a potential growth spurt but giving the competition an extra reprieve to come up with further improvements, that will eventually make the phone a second choice. The smart phone world has changed drastically in the latter six months and Apple can not afford to make this mistake of limiting itself to ATT when Google and the rest of the OEM's are exponentially gaining ground. It is only a matter of time before the competition runs over their ramparts.

    Apple needs to understand that Ghengis Khan (Samsung, HTC, LG etc.) is preparing his final riposte into their territory. Unless Apple untethers itself and joins forces with the remaining carriers it will have no chance in maintaining its leadership and it will have to cede territory. Unless Apple has a secret weapon to hold back the Asian OEMs they are in for a rude awakening. The Mongols are coming with the aid of Android and WebOS.

  • Report this Comment On December 16, 2009, at 11:34 AM, TMFRhino wrote:

    Aryabod,

    Great stuff as always. Do you have a blog or anything of the sort on this subject? I see your posts in a lot of these telecom articles and you've got a great feel for the industry.

    -Eric Bleeker (TMFRhino)

  • Report this Comment On December 16, 2009, at 3:19 PM, CyborgTrader wrote:

    I have the new Moto Droid and love it. I'm not impressed with other carries, so I stick with Verizon. Ever visit their stores or called customer service. No problem we will take care of you. Whether Verizon can handle voice and data, unless you are connected to wi-fi is IMHO irrevelant. Unless you live in Boondock, USA their should be a wi-fi connection near you.

    What people fail to see is that it's the network and customer service and not the hardware. I remember calling Sprint/Nextel monthly to correct my cell phone bill. I only had them because my son wanted the "chirp" phone to chirp with his friends.

    If Google release the G phone unlocked, then that is a major hardware game changer, because now I can call up Verizon and haggle a bit on price. Again, this is akin to I like Dodge, my son like Ford, and my mom love GM. In the end, Toyota & Nissan will rule the day.

    Here's an interesting tidbit. If Verizon, Google, and Motorola have a spat, will Google buy Sprint. I don't know, but every month I'm long minimum 100 Sprint call options, like a broken clock it's right twice a day.

  • Report this Comment On January 20, 2011, at 12:07 PM, shaniskinny wrote:

    Check out this review on Verizon vs AT&T http://bit.ly/ewhTln

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