Will You Be Trapped by Your Wireless Provider?

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The country's wireless providers may have Groundhog's Day circled on their calendars. Already seeing a boost in price during the week from economic data, AT&T (NYSE: T  ) , Sprint (NYSE: S  ) , and Verizon (NYSE: VZ  ) may have a reason to celebrate once a new rule guarding phone usage goes into effect.

The term "jailbreak" just got a little more appropriate
Jailbreaking a phone refers to a person unlocking his or her smartphone, which allows the person to use any cellular network with the same device. This was often the thorn in a wireless provider's side, because customers were able to switch carriers if they no longer liked their current network. But all of that changes on Feb. 2, when a new exemption under the Digital Millennium Copyright Act will make jailbreaking a smartphone a crime that serves out fines or jail time.

The phone carriers will be able to file suit against customers for damages caused by the unlocked phones, such as contract loss, etc. -- though the maximum fine levied would be $2,500. In the case of people looking to profit from jailbreak phones, the maximum damages could reach as high as $500,000.

Investors in the telecom businesses should consider this ruling, though questionable, a win for their stocks. There has always been a lot of competition in the space, with customers taking advantage of subsidized phone deals (think $600+ iPhone 5s for $199 and a two-year contract), and then moving to a new network, or selling the phone. And some of that competition was prevalent in the days leading up to the new rule's start date.

In the days leading up to the new rule's enactment, smaller-time player T-Mobile, the U.S. wireless operation of Deutsche Telekom AG, has been promoting lower monthly plans if you bring in your "unlocked AT&T phone." This is a last-ditch effort (perhaps) to capture some of the dissatisfied customers looking for a way out of their current networks.

With the abrupt slowing of new mobile users each quarter -- dropping from 5 million in 2011 to 3 million in 2012 -- there is reason for the carriers to be protective of their current customers. AT&T and Verizon are at the top of the pack, with over 70% of the total market share between them.  Though both Sprint and T-Mobile, with unlimited everything these days, have tried to undercut the two kings of the hill, there has been little movement of either company in the market share category. In fact, AT&T has tried to buy T-Mobile, only to be blocked by regulators.

Moving forward
Though the law backtracks to ones that governed consumers years ago, there will probably be little outcry from the majority of customers, who will have the option to buy unlocked phones from the carriers for full retail prices. Most likely, this new rule will only affect a very small number of consumers. If the new ruling is able to help steady the flow of customers from one provider to the other, investors should look for improved retention rates and consistent revenue from signed contracts.

As the fight for more customers continues, so does the vast improvements in technology and opportunities. The mobile revolution is still in its infancy, but with so many different companies, it can be daunting to know how to profit in the space. Fortunately, The Motley Fool has just released a free report on mobile named "The Next Trillion-Dollar Revolution," which tells you how. Inside the report, we not only describe why this seismic shift will dwarf any other technology revolution seen before it, but we also name the company at the forefront of the trend. Hundreds of thousands have requested access to previous reports, and you can access this new report today by clicking here -- it's free.

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  • Report this Comment On February 01, 2013, at 11:24 PM, XMFHarleyQuinn wrote:

    It's been brought to my attention that I made a mistake by equating jailbreaking and unlocking a phone. Apparently, jailbreaking is related to removing a phone's restrictions put in by the phone's manufacturer in order to customize it and add functionality.

    One reader pointed out that unlocking a phone - the correct term for the purposes of this article - can be achieved via jailbreaking, but that is not always the case, nor the primary function of performing the jailbreaking process.

    Please excuse my error in choosing terms, but the underlying investment-related information of the article still holds true. Thanks for reading.

  • Report this Comment On February 01, 2013, at 11:57 PM, rabidpeach wrote:

    This will affect anyone with a "world phone" or gsm phone that they would like to use in Europe or the rest of the world without ridiculous roaming charges. I was told there would be a 15$ access charge (per day +data) if my smart phone got online abroad.

    I asked att to sim unlock my phone before traveling and it saved me some money since Europe has so much more competition for wireless than here, charges are lower.

    Consumer advice: I would have paid my phone twice over if I stayed on att's subsidized plan. I will avoid any and all contract phones in the future and buy unlocked.

    Btw this ruling is terrible. Octogenarian randomly decides this is illegal now. Since when do you get to buy something and not use it how you please?

  • Report this Comment On February 04, 2013, at 10:23 AM, 12368818 wrote:

    Nokia is an opportunity with big upside.

    Nokia´s shorts have even increased from the last two weeks.

    In NYSE Nokia short interest has hit 8.3%, and in Helsinki Nokia short interest has also hit record high 12.15% (this number only counted with investors with over 0.5% of short positions, below 0.5% not listed because of EU law).

    The percentage numbers are counted with

    Nokia´s total share number which is approximately 3.75 billion shares.

    When now Dows and S&P have hit all time highs, there are barely any cheap stocks than Nokia.

    Nokia which has come down 90% from its highest is a stock to consider,

    because it is extremely cheap and the reward can be one of the biggest in NYSE for the future.

    Nokia is a stock with great upside opportunity and why:

    1) Nokia´s bankruptcy is already remote.

    Nokia has increased net cash to about $5.7 billion.

    Nokia´s worst loss has been $290 million a quarter in 2012.

    Even with this kind of loss, Nokia could still deal by its own net cash for at least 4 years!

    2) Nokia won´t have to deal with that kind of loss in the future and why

    A. Nokia has cut cost expenses. The layoff in 2012 starts to be fully effective in 2013.

    B. Now Nokia has to pay royalty to Microsoft, but Nokia has patent incomes.

    C. Nokia has managed to make the important tough work for the basis of its new platform WP.

    Nokia has already sold over 15 million Lumia phones up to date (9.9 million units from Lumia debut till the end of September 2012 + 4.4 million units in the last quarter of 2012 + January 2013).

    D. Nokia has now a high end phone that can make “halo effects” and be compared to Apple´s and Samsung´s most high-end phone, the Lumia 920.

    The demand of this phone is still high in many countries around the world. The 4Q12´s Lumia sales did not include the sales of Lumia 920 in many countries, such as India, Asia-Pacific, UAE, Latin America, and many other countries around the world yet, because the phone was arriving these countries only starting from January 2013.

    Even in Europe, many countries start to get this phone starting 1Q13, for example the Netherlands announced the phone arriving in January.

    And China Mobile received only first lot of Lumias 920T around Christmas, the second and third lot and further have arrived China, and the phone is still selling out.

    E. China Mobile deal. When now, both China Mobile and China Unicom are subsidizing the Lumia 920 heavily, the 2-year or 3-year contract is starting from

    0 or 1 yuan, and considering only less than 1/5 of Chinese people are using highest-end smartphones,

    this will result into a huge number of 2-year or 3-year contract users for Nokia in China! Besides, 3G penetration in China is still very low, there is a huge opportunity there. Additionally, among the highest end phones, Nokia Lumia 920 is significantly much cheaper than for example iPhone 5 and Galaxy Note II. Nokia has an advantage in both the price competition and the biggest carriers´ backing in China!

    F. Nokia Siemens Networks (NSN). During these few months NSN has won many 3G and 4G contracts in many countries.

    According to NSN, they have network equipment that can boost the speed of 4G many times faster. This shows that, beside PureView camera technology, HD+ sensitive screen technology, advanced mapping platform HERE and City Lens, Nokia has also top innovations in building 4G LTE networks.

    G. MWC is coming soon. There are still more to come from Nokia.

    According to The Verge, Nokia will launch PureView camera phone, and also Lumia Catwalk (code name) and Lumia Laser (code name) for Verizon.

    According to CEO Stephen Elop, Nokia is also planning a lot of interesting things with Verizon.

    Nokia is likely launching tablet as well, even with some loyal fans of Nokia around the world buying some of Nokia´s tablets, this will be a good gain for Nokia.

    Nokia will launch more Lumia phones in the coming months to attract different consumer demands. More lower price-point,

    mid-range and high-end WP8 Lumias are to come.

    In 1Q13, beside Lumia 920 and Lumia 820 which are making their way to more markets and with better supplies, Nokia is also attracting the mass markets with budget WP phones Lumia 620 and Lumia 505.

    F. Asha phones. Asha phones are now selling almost 10 million units a quarter.

    Asha phones are affordable and competitive. Asha phones have now more and more smartphone features.

    Apart from features like Facebook, Twitter etc. Asha phones

    have internet access and access to thousands of Nokia´s most popular apps.

    Nokia has also brought an app called “Nearby” into Asha phones. Nearby is almost the same as City Lens in Lumia phones which is exclusive and unique in mapping and location data.

    There is still plenty of room for Asha phones to grow, because the price is competitive (cheapest android is right now about $100, while Asha is only about $70 without any contract).

    Apart from the features and price mentioned above, there are important and good selling points in Asha phones against cheapest androids, for example 40 free most popular games!

    Asha phones are still profitable for Nokia, because the OS is from Nokia itself, Nokia does not have to pay royalty for it.

    3) While bankruptcy is remote, Nokia´s stock price is still heavily undervalued.

    NYSE tech stocks are usually 2x book value, Nokia is still way much below that.

    According to Morningstar´s valuation, the sum of parts of Nokia (NSN, Navteq, feature phones, smartphones and patent portfolio)

    is worth much more than Nokia´s stock price right now, not to mention Nokia´s $5.7 billion net cash added to that value!

    Two years ago NOK was still about $15, now the stock is only over $4, the reason is that the stock has been over sold.

    Nokia is the most short sold stock in both Helsinki and New York! The shorts are much over 20% in Nokia´s total share number which is approximately 3.75 billion shares.

    This is a huge number, considering Apple´s short interest is only around 1% and Samsung´s around 2%. When Nokia is here to stay, the shorts need to be covered and the stock will skyrocket from these levels.

    Nokia Apple Intel Microsoft Cirrus Logic

    0.32 3.0 2 3.0 3.76

    Note that Nokia is currently selling at 0.32 price/sales ratio. This means that if the company manages to restructure and return to normal profitability, the stock has the potential to become a 10x bagger (even from today’s price levels) – assuming the market will value Nokia 3.0x sales like Apple or Microsoft. But even a price/sales ratio of 2, like Intel has, means a 6x bagger from these levels.

  • Report this Comment On February 04, 2013, at 10:24 AM, 12368818 wrote:

    Reasons why Nokia is more likely the third horse in the race than BlackBerry:

    1) Competitive prices (with those prices Nokia has already returned to profitability in the recent quarter).

    2) Ecosystem (Windows Phones, Windows tablets, Windows PCs, Xbox games, Xbox Music, Microsoft Office, SkyDrive and so on).

    3) Nokia´s exclusive innovations in Lumia phones

    (PureView camera technology, HD+ sensitive screen technology, advanced mapping platform Here and City Lens, free music with no adds, offline turn by turn GPS, rich sound recording etc).

    4) China Mobile and China Unicom are subsidizing Lumia 920/Lumia 920T for a 2-year or 3-year contract starting from 0 or 1 yuan.

    Beside price competition, Nokia has already partnered with the two biggest operators in China

    (China Mobile and China Unicom together have about 90% of all subscribers in China, and China is now the biggest smartphone market in the world because of the huge population).

    5) Nokia has been just voted as the most trusted brand in the world´s second largest country India, where Nokia´s Asha phones are also selling very well.

    6) Nokia Siemens Networks (NSN) has advanced and competitive technology to build LTE networks.

    According to the Verge and other sources, Nokia may launch these devices as early as February at MWC:

    Lumia Eos (PureView camera phone)

    Lumia Catwalk (international flagship phone)

    Lumia Laser (Verizon flagship phone)

    Windows RT tablet (with added battery in the cover)

  • Report this Comment On February 05, 2013, at 9:55 AM, collusion wrote:

    "Jailbreaking a phone refers to a person unlocking his or her smartphone, which allows the person to use any cellular network with the same device. "

    Somewhat incorrect. The term 'Jailbreaking' came about because the goal is to break out of Apple 'jail'. The goal was to break out of the iTunes walled garden of apps and allow people to install custom iPhone applications that didn't meet Apple's requirements.

    Jailbreaking your iPhone is most likely a requirement for unlocking your phone, but it is not the process. Jailbreaking is more like rooting your phone on Android. You don't get carrier unlock benefits by it, you just get greater access privileged to your iPhone.

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