Investing in Wireless' Last Frontier

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

Many of the best "ten baggers" are found in obscure places. However, every now and then, there are stocks that are very intriguing, but should be avoided. Alaska Communications Systems Group (NASDAQ: ALSK  ) happens to be one of those stocks. Trading at only two times earnings, the stock looks cheap, but could prove to be a value trap. 

Alaska Communications provides telephone, wireless, data, and Internet services in Alaska. The company remains the largest local telecommunications provider in the state. Alaska has remained the last frontier in a number of respects, including telecom, but things are changing. Much of the industry's wireline services are being replaced by wireless, and one major telecom company is looking to take the state by storm. 

Alaska Communications offers wireless, right?
Landlines have been thrown by the wayside, and major telecom providers are feeling pressure from wireless operators. While Alaska Communications offers wireless, it's got some serious competition. Wireless service accounts for roughly 40% of Alaska Communications' revenue. Verizon  (NYSE: VZ  )  is finally making a big push to bring 4G to Alaska.

As a result, during the second quarter, Alaska Communications' wireless subscribers declined 5% year-over-year. For the year ended June 2013, average revenue per user was down 3% year-over-year. 

This comes after Verizon recently added nine new cell sites in Alaska, all part of its plan to bring LTE to the state. Its LTE network now covers 65% of Alaska. Verizon's 4G LTE in Rural America program has been taking Alaska by storm.

Verizon also has an agreement with Alaska Communications stipulating it will pay the company to use its networks when its customer are roaming. However, as Verizon increases its network coverage, these roaming charges will decline.

Another telecom opportunity to consider
Instead of risking your money with Alaska Communications, there are better ways to invest in the telecom industry. One such opportunity is Verizon. The company is boosting its Alaska exposure, and it recently bought out Vodafone for $130 billion, taking full control of Verizon Wireless. Despite the hefty price tag of the acquisition, it will be a long-term positive for the company. 

There are also other companies in the telecom space that are worth avoiding. CenturyLink (NYSE: CTL  )  for example, is too heavily tied to the landline industry. Its dividend is questionable at best; despite a dividend yield of more than 6.5%, the payment is well in excess of 100% of earnings.

Last month, CenturyLink guided full-year 2013 earnings down, as the company continues to experience accelerating declines in low-bandwidth services. Now, the company expects 2014 revenue to come in below 2013. What's more, analysts expect the company to only grow EPS at an annualized 1.4% over the next five years. 

Bottom line
While Alaska Communications appears very cheap on the surface, it's cheap for a reason. The company has an expected earnings growth rate that's well below its peers, and it also doesn't offer investors a dividend. Alaska Communications paid a dividend until late 2012, when it suspended dividends in hopes of improving its balance sheet, but its debt load still remains above peers.

Investors in the telecom market are better off considering companies that pay a dividend. Verizon gives investors impressive exposure to the wireless market, while also paying a 4.2% dividend yield. Stick with this company if you need some telecom exposure, and avoid taking a risk with Alaska Communications.

Other opportunities in telecom
Want to get in on the smartphone phenomenon? Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But, it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

Read/Post Comments (1) | Recommend This Article (0)

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 November 02, 2013, at 4:26 PM, yago wrote:

    What do you think about Alaska Wireless Network (AWN)? AWN is a joint-venture with CGI that provides ALSK $100M for its wireless infrastructure, and $190M of preferred cash flows during the next 4 years.

    Wireless only represents 25% of ALSK revenues. What do you think about the growth of the broadband wireline sector in Alaska?

    With regards to Verizon, do you think the $1billion Alaska telecommunications market that is already crowded with AT&T, GCI and ALSK is going to move the needle for Verizon?

    Thank you.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2701853, ~/Articles/ArticleHandler.aspx, 9/25/2016 12:05:17 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 4:00 PM
ALSK $1.75 Up +0.06 +3.55%
Alaska Communicati… CAPS Rating: ***
CTL $27.42 Down -0.19 -0.69%
CenturyLink CAPS Rating: **
VZ $52.56 Up +0.21 +0.40%
Verizon Communicat… CAPS Rating: ****