Source: Verizon.

Verizon Communications (NYSE:VZ) is one of the Dow Jones Industrial Average 's (DJINDICES:^DJI) worst performers again. The stock fell 1.3% in Tuesday's afternoon session. The Dow itself is down 0.14%. And here's the most interesting bit of all: Fellow Dow telecom AT&T (NYSE:T) is also trading 0.5% in the red.

Why is AT&T's modest slide so curious? Because Ma Bell arguably caused Verizon's pain today -- and isn't gaining anything for itself.

Here's the lay of the land:

  • Verizon isn't completely news-free today, but all of its updates are relatively minor and should land in the "plus" column for the stock.

  • There was no analyst action on the stock this morning. All quiet on the Wall Street front!

  • But AT&T just updated its second-quarter guidance, and seems to be stealing business from somebody.

  • Assuming that Verizon would be Ma Bell's largest victim, that's positive news for AT&T and negative for Verizon.

Makes sense all around, right? Except, as I explained earlier, AT&T isn't rising as it should.

So this can't be the whole story. Luckily, AT&T made it easy to find the missing piece.

See, AT&T is grabbing subscribers off the market with both hands. The company expects to add about 800,000 contract-bound subscribers in the second quarter, up from 550,000 in the year-ago period. Full-year revenue should rise about 5% if these trends hold steady. That's up from the 4% growth guidance provided in last month's earnings release, and works out to the strongest sales growth AT&T has seen in years:

T Revenue (Annual YoY Growth) Chart

T Revenue (Annual YoY Growth) data by YCharts.

But AT&T is pulling in customers with a costly trick. The AT&T Next handset upgrade program and the Mobile Share Value service plan turned out to be very popular. About half of the company's smartphone sales in the second quarter should have Next options attached.

Combined, these two tendencies are pressuring AT&T's average revenue per user, with high growth in handset sales but stagnant service plan revenue. That's bad for margins, and AT&T set a new full-year earnings growth goal of "low end of the mid-single digit range."

Interpreting this as maybe 4% year-over-year earnings-per-share growth, you'd land somewhere around $2.60 per share. Analysts currently expect $2.69 per share, just above management's original guidance.

Sooo ... Verizon suffers as AT&T shows up with an attractive subscriber-magnet deal. It's only fair to assume that Big Red is on the losing end of that balance shift.

At the same time, those new customers turned out to be costly indeed. So it's more of a mutual sinking feeling than a seesaw with one stock going up and the other down.

The telecoms are feeling the winds of change
Both AT&T and Verizon are giving their business models a huge overhaul right now. They can't afford not to, given pressure from smaller rivals and a wholesale revolution brewing on the hardware side of the industry. Do you think AT&T would squeeze its own profit margins if it had a choice? Or that Verizon would follow suit, voluntarily? No way. But what's the mystery revolution that's knocking on the telecoms' doors right now? To find out all about this scary and exhilarating (depending on who you ask) new class of mobile devices, justĀ click here!

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned, either. Try any of our Foolish newsletter services free for 30 days.

We Fools may not 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.

Compare Brokers