Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



AT&T and Verizon Drag On the Dow; Can Sprint and T-Mobile Really Win?

The stock market kept investors on their toes Tuesday, with the Dow Jones Industrials (DJINDICES: ^DJI  ) and other major-market averages staying close to yesterday's closing levels as market participants waited for more news to help them decide the future course of the global economy and the sustainability of the 5-year-old bull market. By 12:30 p.m. EDT, the Dow was down 46 points; among its worst performers were AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) , which fell between 1% and 1.25%. For the Dow's two telecom giants, competition from reinvigorated rivals T-Mobile (NYSE: TMUS  ) and Sprint (NYSE: S  ) has become a bigger threat lately, but do the smaller companies really have a chance to eat into Verizon's and AT&T's dominance of the industry?

Fighting the good fight
Recently, there's been a huge escalation in the war among the four major telecom providers in the U.S., with smaller companies raising the volume level on the ongoing debate. One of the most vocal opponents of AT&T and Verizon is Masayoshi Son, president of SoftBank, which took a roughly 80% stake in Sprint last year. Son said recently that he would start a "massive price war" in the wireless industry if SoftBank is allowed to buy T-Mobile and merge it into Sprint, creating a carrier whose size would rival that of AT&T and Verizon. With his international perspective, Son recently noted how bad wireless service is in the U.S. compared to the rest of the world, even though fees here are among the highest.

T-Mobile hasn't waited for a merger to happen before taking aggressive steps of its own. Last week, the company announced another pricing change, with CEO John Legere comparing Verizon and AT&T to loan sharks because of their low-data-limit plans. T-Mobile has a lot more to show from its efforts, gaining 4.4 million subscribers during 2013 compared to just modest gains for Sprint last year. Moreover, T-Mobile has inspired change from AT&T, with moves to de-emphasize subsidized plans becoming more common. Verizon seems resistant to that trend, but it's unclear how long it can hold out if customers get used to newer financing plans and other nonsubsidy methods of getting them to buy new phones.

Wireless networks keep growing, even as cell-phone towers become more hidden than ever. Image source: Bill Selak, Flickr.

Can the big telecoms stay big?
For AT&T and Verizon, the good news is that most people never switch carriers even when superior plan options become available. According to consumer data from Parks Associates, almost half of mobile customers have stayed with their original provider for at least a decade, and only about one in eight have switched three or more times. That behavior effectively creates a competitive moat around Verizon and AT&T and their superior market share, but it doesn't mean that their leadership status is impregnable.

Still, size presents its own challenges. Verizon recently tapped the bond market again with a $4.5 billion offering, and the huge amount of debt it incurred to take full control of Verizon Wireless could present it with substantial financing obstacles if interest rates rise by the time the debt comes due. With so many people looking to AT&T and Verizon for their dividends, any threat to those payouts could cause big problems down the road.

The telecom industry looks like it might be poised to underperform in the intermediate term, at least until industry players figure out how to position themselves for greater competition. In the long run, AT&T and Verizon could end up being a longer-term drag on the Dow's performance, despite their attractive dividends.

Get great dividends here
If you want solid dividends, you don't have to settle for telecoms. Identifying which dividend stocks in particular are the best can be tough, but our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Read/Post Comments (0) | Recommend This Article (2)

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.

Be the first one to comment on this article.

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: 2872395, ~/Articles/ArticleHandler.aspx, 8/29/2015 10:41:34 AM

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...

Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

Today's Market

updated 13 hours ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

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

8/28/2015 4:55 PM
^DJI $16643.01 Down -11.76 -0.07%
S $5.19 Up +0.12 +2.37%
Sprint CAPS Rating: **
T $33.29 Down -0.15 -0.45%
AT&T CAPS Rating: ****
TMUS $40.00 Up +0.06 +0.15%
T-Mobile US CAPS Rating: ***
VZ $46.07 Down -0.12 -0.26%
Verizon Communicat… CAPS Rating: ****