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Telecom Stocks Drop After T-Mobile Unveils New Plan

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While the Dow Jones Industrial Average (DJINDICES: ^DJI  ) had fallen more than points as of 11:40 a.m. EST, telecom stocks were dropping even more, with Dow Jones components Verizon Communications (NYSE: VZ  ) and AT&T (NYSE: T  ) notching declines of more than 1%. Shares of T-Mobile (NYSE: TMUS  ) were down just slightly, while Sprint (NYSE: S  ) shares plunged nearly 4%.

Euro drops after ECB decision
The euro's value declined early on Thursday, weakening against the U.S. dollar. The move followed a decision by the European Central Bank not to alter its monetary policy. However, the ECB said it could push additional stimulative measures if the European economy shows signs of weakness in the future.

One way to look at the euro's weakness is to see it as the dollar's strength. A stronger dollar is often viewed as a negative for the stock market, at least in the short run. The Dow Jones sell-off on Thursday, then, may have been partially fueled by the rising value of the dollar relative to other world currencies.

T-Mobile will pay you to switch
The Dow Jones was led lower by two of its telecom components -- AT&T and Verizon. Shares of both companies fell on the possibility that they could lose wireless subscribers in the coming quarters.

Yesterday at the Consumer Electronics Show, T-Mobile unveiled an offer to pay off some or all of the early termination fees for users of other wireless services who switch to T-Mobile. AT&T and Verizon subscribers may have liked the changes T-Mobile has been implementing in recent quarters and been tempted to switch, but held back because of those expensive early termination fees. Under T-Mobile's new plan, they may be more likely to switch, although AT&T is offering something similar for T-Mobile subscribers who wish to come to AT&T.

Competition in the wireless industry seems to be heating up, which while great for consumers isn't particularly good for the business prospects of the companies involved.

Sprint shares plunge
Sprint shares were down much more than its rivals. It's likely that a number of factors were weighing on the wireless carrier. 

First, there's the possibility that -- like AT&T and Verizon -- it could lose subscribers to T-Mobile. There's also the fact that Sprint has reportedly been mulling a merger with T-Mobile. However, the U.S. Justice Department may be unlikely to approve a merger when T-Mobile is growing rapidly and disrupting the wireless industry. Lastly, Dish Network dropped its bid for LightSquared on Thursday, signalling that it may be dropping plans to compete in the wireless industry.

Dish Network tried to purchase Sprint early last year, but ultimately lost out to Japanese giant Softbank. Still, Dish Network had a lot of wireless spectrum assets, and some sort of tie-up or joint-venture between the two companies in the future seemed likely.

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Sam Mattera

Sam has a love of all things finance. He writes about tech stocks and consumer goods.

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8/27/2015 4:35 PM
^DJI $16654.77 Up +369.26 +2.27%
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T-Mobile US CAPS Rating: ***
VZ $46.19 Up +1.03 +2.28%
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