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Telecom Stocks Drop as Sprint Backs Away from T-Mobile

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) fell more than 25 points as of 11:30 a.m. EST. Dow components Verizon Communications (NYSE: VZ  ) and AT&T (NYSE: T  ) were respectively slightly down and up, while shares of their rivals Sprint (NYSE: S  ) and T-Mobile (NYSE: TMUS  ) posted more notable declines.

All quiet on the economic front
There weren't any major economic releases on Monday to explain the Dow Jones' decline. Overall, the global economic calendar was particularly light, with few major international reports.

Later in the week, investors will get statements from a number of major central bankers. Janet Yellen, the new head of the Federal Reserve, will testify before the Joint Economic Committee on Tuesday, while the European Central Bank's Mario Draghi will speak on Wednesday. Investors will likely be looking to judge their commitment to future monetary easing, and their remarks could affect stocks later in the week.

Sprint could back down from T-Mobile bid
Sprint, with the support of Japan's SoftBank, has been mulling a takeover of T-Mobile. In recent weeks, various media outlets have reported that Sprint was putting together the financing for such a deal, and that an official bid could come in the near future.

Now that might not happen. According to The Wall Street Journal, Sprint is having second thoughts. The U.S. government would have to approve the merger, and the Justice Department and Federal Communications Commission are reportedly not sold on the idea of combining the nation's third- and fourth-largest wireless providers.

The Justice Department blocked the merger of T-Mobile and AT&T in 2011, and AT&T was forced to pay Deutsche Telekom (T-Mobile's parent company) $4 billion. SoftBank and Sprint executives obviously don't wish to see history repeat itself.

Telecom stocks drop 
Sprint shares fell 3% on the news. T-Mobile shares likewise declined a bit less than 2%. Verizon and AT&T were nearly unchanged, suggesting that the news was not having a major effect on the companies, although the future of Sprint and T-Mobile obviously impacts both companies in the long term.

A combined Sprint/T-Mobile entity could pose a challenge to AT&T and Verizon, which remain the two most dominant companies in the wireless industry. But if they remain independent, more competition could bring down profits. T-Mobile's recent initiatives to attract new customers seem to have had a noticeable effect on AT&T, with the company offering T-Mobile subscribers incentives to switch to AT&T.

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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
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