The country's wireless providers may have Groundhog's Day circled on their calendars. Already seeing a boost in price during the week from economic data, AT&T (NYSE:T), Sprint (NYSE:S), and Verizon (NYSE:VZ) may have a reason to celebrate once a new rule guarding phone usage goes into effect.
The term "jailbreak" just got a little more appropriate
Jailbreaking a phone refers to a person unlocking his or her smartphone, which allows the person to use any cellular network with the same device. This was often the thorn in a wireless provider's side, because customers were able to switch carriers if they no longer liked their current network. But all of that changes on Feb. 2, when a new exemption under the Digital Millennium Copyright Act will make jailbreaking a smartphone a crime that serves out fines or jail time.
The phone carriers will be able to file suit against customers for damages caused by the unlocked phones, such as contract loss, etc. -- though the maximum fine levied would be $2,500. In the case of people looking to profit from jailbreak phones, the maximum damages could reach as high as $500,000.
Investors in the telecom businesses should consider this ruling, though questionable, a win for their stocks. There has always been a lot of competition in the space, with customers taking advantage of subsidized phone deals (think $600+ iPhone 5s for $199 and a two-year contract), and then moving to a new network, or selling the phone. And some of that competition was prevalent in the days leading up to the new rule's start date.
In the days leading up to the new rule's enactment, smaller-time player T-Mobile, the U.S. wireless operation of Deutsche Telekom AG, has been promoting lower monthly plans if you bring in your "unlocked AT&T phone." This is a last-ditch effort (perhaps) to capture some of the dissatisfied customers looking for a way out of their current networks.
With the abrupt slowing of new mobile users each quarter -- dropping from 5 million in 2011 to 3 million in 2012 -- there is reason for the carriers to be protective of their current customers. AT&T and Verizon are at the top of the pack, with over 70% of the total market share between them. Though both Sprint and T-Mobile, with unlimited everything these days, have tried to undercut the two kings of the hill, there has been little movement of either company in the market share category. In fact, AT&T has tried to buy T-Mobile, only to be blocked by regulators.
Though the law backtracks to ones that governed consumers years ago, there will probably be little outcry from the majority of customers, who will have the option to buy unlocked phones from the carriers for full retail prices. Most likely, this new rule will only affect a very small number of consumers. If the new ruling is able to help steady the flow of customers from one provider to the other, investors should look for improved retention rates and consistent revenue from signed contracts.