Here's Why Verizon Communications Inc. and AT&T Inc. Missed Today's Market Rally

The market is having an unusually bright day, lifted by a positive U.S. consumer spending report. The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is up 0.4% at 2 p.m. EDT, with 23 of its 30 members trading in the green for the day.

But the big telecoms aren't following suit. AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) are two of the three Dow stocks trading lower this afternoon. AT&T is down a modest 0.3% and Verizon shares dropped 0.8%. No huge plunges, but they look worse when compared to the Dow's gain.

So Ma Bell and Big Red are missing out on a significant market rally. What's wrong with the telecoms today?

This one comes down to the never-ending radio spectrum battles. The communications trade journal Broadcasting & Cable just published comments from FCC Chairman Tom Wheeler, which seem to clear the path toward more high-quality spectrum for Sprint (NYSE: S  ) and T-Mobile  (NYSE: TMUS  ) . Verizon and AT&T sit on the losing end of this zero-sum equation, since they would otherwise gain even larger spectrum advantages at the smaller carriers' expense.

Wheeler talked about the spectrum auction in February and another small-time sale coming up later this year, noting that these auctions might bring in enough cash to fund the construction of a high-speed nationwide emergency services network.

The so-called FirstNet will cost about $7 billion to build, and Wheeler estimated that these two auctions might add up to about $7.2 billion. If that happens, there will be less pressure to make big money on the larger auction of former TV station frequencies next year.

And that changes the balance between optimizing the final auction for maximum revenue, or optimizing it for stronger competition. So these comments straight from the FCC's top open the window for limitations on how much spectrum any single operator can win in the 2015 sale. That's bad for Verizon and AT&T, great news for Sprint and T-Mobile, and arguably better for the American consumer as well.

T-Mobile shares traded up with the overall market today. Sprint missed the rally just like its larger rivals. The company reached out to rural telecoms in hopes of creating a nationwide roaming partnership, which would include Sprint helping its rural partners to build out more reliable networks. Sprint investors are ignoring the good spectrum tidings, worried that this idea might be a needless cash flow killer.

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  • Report this Comment On April 03, 2014, at 7:48 PM, jodinajoseph wrote:

    The recent news states that Verizon Communications Inc. gets vote of confidence from Morgan Stanley, which joins other sell side analysts in upgrading telecom giant’s target price

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Anders Bylund

Anders Bylund is a Foolish Technology and Entertainment Specialist. Where the two markets intersect, you'll find his wheelhouse. He has been an official Fool since 2006 but a jester all his life.

Hypoallergenic. Contains six flavors not found in nature. Believes in coyotes and time as an abstract.

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9/3/2015 4:35 PM
^DJI $16374.76 Up +23.38 +0.14%
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AT&T CAPS Rating: ****
TMUS $39.45 Up +0.13 +0.33%
T-Mobile US CAPS Rating: ***
VZ $45.72 Up +0.37 +0.82%
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