Dow Rises as AT&T Starts a Mobile War

The Federal Reserve is back in focus today after Philadelphia Fed President Charles Plosser said the central bank may have to raise rates well before most investors expect. If market rates rise faster than expected as the economy and employment markets improve, it's possible the Fed funds rate will have to be raised above 2% before the end of 2016. Rates will be worth keeping an eye on this year now that the Fed has begun slowing monetary stimulus, but they're not a reason to panic at the moment.  

Comments from Plosser and other Fed officials didn't seem to hurt the Dow Jones Industrial Average (DJINDICES: ^DJI  )  , which is off its highs but still up 0.40% on the day. Volume is very low because of the holiday week and bad weather hitting New York City, and with an absence of market-moving news it's not surprising the Dow isn't moving too far today.

AT&T takes the gloves off
The one Dow component making noise today is AT&T (NYSE: T  ) , which is offering up to $450 to T-Mobile  (NYSE: TMUS  ) customers who switch to AT&T Next plans and buy a phone at retail price. The $450 offer encompasses up to $250 for a mobile phone upgrade if you trade in an old phone and $200 in credit per line for switching.  

Analysts are already saying that the $250 per phone deal is misleading because you'd have to trade in a relatively new phone that would fetch a similar price on the open market. The $200 in credit needs context because AT&T Next plans require you to buy the phone, and not receive a subsidy, which often costs more than $200.

That's not to say the offer won't be attractive to some, but whether this is good for any given consumer depends on your situation. The offer shows that AT&T is clearly worried about T-Mobile as a competitor slowly eating away at its customer base. The carrier is now offering most available high-end smartphones and has lower plan prices than rivals AT&T and Verizon Communications (NYSE: VZ  ) .

Should AT&T and Verizon be worried?
When a price war breaks out in a space like mobile everyone loses, and that's the case on the market today. Verizon is down 1%, T-Mobile is down 2.8%, and AT&T is down about 0.01%.

Clearly T-Mobile has the most to lose if AT&T's offer is successful, but AT&T could give up some margin if customers switch. Verizon may also have to offer more to attract customers, although I see Verizon as least affected because it maintains a price premium based on its superior network.

Keep an eye on how long this battle lasts or if it accelerates. A full-out price war could be bad for all of these stocks, though I just can't see that happening in a cozy high-margin market like mobile right now.

Buy businesses that will win long-term
T-Mobile is making a splash now, but can it compete long-term? That's where investors need to keep their focus and that's why AT&T and Verizon have a leg up right now. If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.


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