The Dow Jumps 1%, but AT&T Falls; Has Verizon Won the Mobile Wars?

Strong stock-market performance sent the Dow up sharply Wednesday, but AT&T was the only big decliner in the Dow 30. Find out more.

May 21, 2014 at 9:05PM
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The Dow Jones Industrials (DJINDICES:^DJI) gained almost 1% on Wednesday, posting a gain of almost 159 points and recovering all of its lost ground from Tuesday's losing session. News that the Federal Reserve intends to continue its dovish stance toward interest rates shouldn't have come as surprising news, but investors still saw it as affirmation of the five-year-old bull market's staying power, silencing their talk of a possible correction. Nearly all of the 30 component stocks of the Dow Jones Industrials rose today, with AT&T (NYSE:T) posting the only substantial decline. AT&T's bad performance recently has raised questions about whether Dow telecom peer Verizon Communications (NYSE:VZ) has effectively won control of the U.S. mobile-network market.

T

AT&T's decline today seems tied to ongoing concerns about its proposed buyout of satellite-TV provider DirecTV. AT&T shareholders have believed for a long time that the company would eventually make a major acquisition, both in efforts to strengthen its business fundamentals as well as simply to keep pace with the massive expansion in Verizon's size after its full takeover of its Verizon Wireless business. But skeptics aren't certain that satellite TV is the right direction for AT&T to go, especially as consolidation in the land-based cable industry could create more powerful content-distribution rivals against which AT&T will have to compete. At the same time, DirecTV shareholders are following the lead of other target companies lately, demanding even greater compensation than the proposed $48.5 billion deal offers them.

Vz

By contrast, Verizon has maintained a laser-like focus on maintaining its grip on the wireless industry, and in light of recent price-based challenges from smaller wireless carriers in the U.S., Verizon's attention to the space is warranted. Having taken on massive amounts of debt in its acquisition of its Verizon Wireless business from its former partner, Verizon desperately needs to make sure that a possible price war doesn't create a long-term discount in the cash flow it expects to reap from its network. Aggressive moves from Verizon to secure valuable spectrum and keep improving the quality of its network could give Verizon the competitive edge it needs to keep charging a premium over discount carriers. With ongoing concerns about net neutrality, regulation of spectrum auctions, and other key matters, Verizon isn't yet in the clear. But investors feel a lot more comfortable with the moves that Verizon has made than with AT&T's somewhat murkier strategy.

Verizon hasn't yet won the mobile wars, but it's making a bigger play toward securing eventual victory. AT&T, on the other hand, is trying to make the most of all of its business opportunities, creating the potential for greater reward but running the risk of failing to achieve dominance in any of them.

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Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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