The telecom industry is a very competitive one, and two of the more notable brands in the field are AT&T (NYSE:T) and Sprint (NYSE:S). While they're at opposite ends of the spectrum in terms of size and resources, that doesn't guarantee that one is a better buy than the other. With Sprint and T-Mobile (NASDAQ:TMUS) looking to merge, the two companies together could be a whole lot stronger and more competitive. But since that deal's not wrapped up just yet, let's take a closer look at how Sprint, on its own, measures up against AT&T.
Has Sprint run out of room to grow on its own?
Sprint released its fiscal 2019 second-quarter earnings in early November, and they weren't very inspiring. Net operating revenues of $7.8 billion during the quarter were down 7.6% from the prior year's $8.4 billion top line. They were also down 4.3% sequentially from the first quarter. Although the company's operating expenses haven't been rising, lower revenues have been compressing its margins, and Sprint has posted a loss in each of the two quarters so far in fiscal 2019. Sprint is also losing wireless subscribers at an increasing rate, with a 396,000 net subscriber loss in Q2, which is more than the 175,000 subscriber decline it saw in Q1.
One area where the telecom industry will see significant growth opportunities is in 5G. In October, Sprint announced that its True Mobile 5G service has now reached nine major cities, including New York, Los Angeles, and Chicago. It estimates that about 16 million people currently have access to the network.
Sprint is still in the very early stages of 5G, and the company is clearly banking on the merger with T-Mobile to move forward. As Sprint CTO Dr. John Saw stated: "We've been working hard to increase 5G coverage inside our nine cities and build a showcase experience for our customers, but this is just the start, showing the power of what we can achieve with T-Mobile. Together we'll build a better, faster, nationwide mobile 5G network that unleashes this performance across the entire country to benefit all U.S. businesses and consumers."
The challenge is that there might be too much hinging on the deal with T-Mobile, and while the merger may very well go through, if it doesn't, Sprint could experience a very negative impact on its future results.
AT&T's size and diversity make it a much safer investment
AT&T also had a less-than-impressive quarter in its most recent earnings report as it too saw sales decline from the previous year. While a drop of 2.5% was a bit more modest, its mobility business, the largest component of AT&Ts's communications segment (which itself accounts for nearly 80% of total company revenue), saw revenue decline just 0.2%, while the adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from the business line was up slightly at 1.6%.
One of the key advantages for AT&T is that it has a breadth of products and services to offer consumers, giving it a lot of flexibility as to how it can grow. Even if its mobility segment is currently flat, it can benefit from the recently announced HBO Max, which will be available next year and could produce significant growth for the company. HBO revenues of $1.8 billion were already up 11% year-over-year this past quarter, and there could be even more improvement to come in 2020. But it's not just the type of service -- AT&T has some terrific growth opportunities geographically as well. During the quarter, the company had around 600,000 net additions to its wireless service in Mexico, and that was a big driver behind the Latin American segment's year-over-year EBITDA expansion of 21%.
AT&T is also going to be one of the key competitors Sprint and T-Mobile are going to face in the race to 5G. Currently, AT&T has 5G networks available in 21 cities and expects to offer a nationwide service before the end of the first half of next year.
Why AT&T is the winner for me
Revenue and earnings diversification is a great feature of any stock, and AT&T has a lot of it. With many terrific products and services to lean on, all of its eggs aren't in just one basket. And with significant resources, the company is well-positioned to fund its own growth, whereas Sprint's long-term success appears contingent on its deal with T-Mobile going through. With stronger financials and less uncertainty, AT&T is the better investment to make today. And as an added bonus for choosing AT&T, the stock will also pay you a solid dividend which yields 5.3% annually. Neither T-Mobile nor Sprint currently provides its investors with a dividend.