Why Verizon and AT&T Are Holding Back the Dow

Tuesday morning left investors in the Dow's telecom stocks unsatisfied. Find out why.

Jun 3, 2014 at 12:30PM

The Dow Jones Industrials (DJINDICES:^DJI) was own 25 points as of 12:30 p.m. EDT, as the stock market continued its recent pattern of taking two steps forward and one step back. Despite ongoing concerns about the potential for a Dow correction, most recent daily losses for the blue-chip index have been modest, reflecting the ongoing tug-of-war between bullish and bearish investors. The Dow's telecom stocks didn't help the average on Tuesday, as both Verizon (NYSE:VZ) and AT&T (NYSE:T) posted declines.


Source: AT&T.

AT&T fell just over a quarter-percent after offering an update on its current conditions and future guidance. The longtime Dow Jones Industrials component was upbeat about the progress of its network upgrades, pointing to gains in its 4G LTE network coverage and its efforts to emphasize broadband Internet access to potential new enterprise customers. AT&T now expects 800,000 new post-paid mobile subscribers in the second quarter, with 3.2 million sales of smartphones under its new AT&T Next purchase plan representing about half of its overall volume. The trend away from subsidies toward unsubsidized pricing plans has been a key driver of higher margins for AT&T, and the company expects that trend to continue. As expected, AT&T's wireline business doesn't look as healthy as its other businesses, and even though the company boosted its sales-growth projections for the full 2014 year to 5%, it guided investors toward the lower end of its earnings-growth outlook.


Verizon shares fell about 1%. In many ways, Verizon's recent efforts look similar to those of AT&T, with ongoing improvements in its own 4G LTE network and the introduction of its Edge installment-purchase plan for mobile devices. Verizon has worked to improve the quality of its FiOS broadband Internet offering in many key locations, continuing to fight for the highest-revenue business from enterprise customers willing to pay premium prices for the fastest possible Internet access. Yet what Verizon shareholders likely took away from AT&T's news is that even though there is still a huge revenue opportunity for both companies in tapping the U.S. mobile-device market, keeping profit margins as high as they've been in the past will require constant vigilance and an ability to provide value-added innovations that customers will be willing to pay up for.

The two telecom stocks in the Dow Jones Industrials don't have a huge influence on the overall average. Nevertheless, given the importance of the wireless industry to the U.S. economy as a whole, it's important to watch both AT&T and Verizon to make sure they're both making the most of their respective profit opportunities.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

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