Telecommunications giants Verizon (NYSE:VZ) and AT&T (NYSE:T) are two of the worst performers on the Dow Jones Industrial Average (DJINDICES:^DJI) today. Verizon shares plunged as much as 0.9% overnight, and Ma Bell topped that with a full 1% drop. The Dow itself lost its early job-market gains but never dropped far below breakeven in intraday trading.
The virtual duopoly of wireless communications didn't actually do anything to deserve this drop. You can blame it all on a far smaller competitor showing some muscles early this morning.
Magenta added 1.1 million customers in the second quarter, selling 4.3 million smartphones along the way. The customer surge is an organic number that did not include the 8.9 million subscribers T-Mobile acquired in the recently closed MetroPCS deal.
Compare that to Verizon adding less than 1 million new subscribers, and AT&T reporting just 632,000 additions. It's easy to see why investors in the big telecoms might feel queasy today.
Combined sales jumped 7.9% year over year, including MetroPCS' stand-alone numbers in the year-ago figures. T-Mobile pins some of this organic success on the Apple (NASDAQ:AAPL) iPhone, which became available at T-Mobile in April. The iPhone is a well-known growth driver for whatever telecoms get their paws on the hot handsets, but Cupertino was actually not the biggest catalyst behind these results.
Instead, management points to innovative new service plans as the main catalyst. "By fixing the things that drive [consumers] mad, like contracts and upgrades, and freeing them from the two-year sentences imposed on them by our competitors, they are choosing the new T-Mobile in unprecedented numbers," said CEO John Legere.
And that's why T-Mobile's success becomes an albatross for AT&T and Verizon. The Dow members may have to follow suit as T-Mobile and other rivals simplify their service plans, because consumers will start to expect these kinds of plans.
Change is always difficult, especially when it's forced upon you by a nimbler rival like T-Mobile. So Verizon's and AT&T's shareholders are taking a step back today to see how the coming changes might impact their holdings.
And Legere smells serious change in the air. "We're taking customers from AT&T at a ratio of two to one," he said in a CNBC interview. "They're in complete fight-back mode, and I find it more humorous every day." Oh, the irony.